US Rockies and West gas prices will likely diverge sharply this summer as capacity restrictions and maintenance limit supply moving into the Pacific Northwest and Northern California markets.
Over the past week, rising summer gas demand in the Western states has already pushed hub prices there to significant premiums over upstream supply locations in the Rockies.
At downstream hubs such as Sumas, Stanfield and PG&E Malin, cash prices have recently strengthened to nearly $2/MMBtu or more, compared with prices in the mid- to upper $1/MMBtu range at CIG Rockies.
More telling, though, is the spread between southwest Wyoming's Kern River Opal hub -- a key gateway for Rockies gas moving west -- and the state's nearby CIG Rockies location.
Over the past week, Opal has moved to an average 23 cent/MMBtu premium to CIG.
With westbound flows of Rockies gas from CIG to Opal limited by existing pipeline capacity, forwards markets are expecting that intrastate price premium to endure.
For June, the balance-of-month price spread from Opal to CIG was assessed Tuesday at 33 cents/MMBtu. For July and August, the spread settled at an average 25 cents/MMBtu.
Forwards prices assessed by S&P Global Platts are published around 6:30 pm EDT and were not yet available for Wednesday's gas day at the time of writing.
BC PIPELINE MAINTENANCE
During the approaching summer months, the usual capacity restrictions on westbound Rockies gas will be exacerbated by maintenance on BC Pipeline -- a critical artery for alternate Western Canadian gas supply moving into the Pacific Northwest and Northern California.
A heavy maintenance schedule announced earlier this year will limit flows through the pipe's Station 4B South near Prince George, British Columbia to just 800 MMcf/d from mid-July.
The restriction is a significant cut to the pipe's nameplate capacity at 1.7 Bcf/d and is expected to continue through late August, severely restricting cross-border flows into the US Pacific Northwest.
As a result, inflows through the Northwest Canadian border hub, Sumas, could fall below 600 MMcf/d during the 40-day outage -- equivalent to a 200 to 300 MMcf/d supply reduction compared with average summertime flows at the border location.
OVERTHRUST CAPACITY
According to S&P Global Platts Analytics, the reduction in Western Canadian gas supply this summer will leave the PNW and Northern California more dependent on Rockies gas supply.
In periods of peak demand or limited supply in the West, though, gas moving westbound from the Rockies on Overthrust Pipeline can brush up against nameplate capacity at 1.4 Bcf/d.
This past winter, flows on Overthrust hovered near capacity during much of January and February amid elevated western gas demand. Over the same period, gas prices at Kern River Opal surged to record highs at over $17/MMBtu, or about a $14/MMBtu premium to the CIG Rockies hub, S&P Global Platts data shows.
During the approaching summer months, Platts Analytics estimates that total western demand pull at the Opal hub could exceed available supply there by roughly 300 to 400 MMcf/d.
While the additional demand is unlikely to drive Opal gas prices to premiums like those seen last winter, cash should remain at a premium to CIG Rockies and could trade well above levels currently anticipated in forwards markets.
