New York—Although the Canadian Energy Regulator's decision to deny extending the NGTL Temporary Service Protocol likely means AECO hub will see more volatility this summer than last, the volatility looks to be much less frequent than in summer 2019 because of more stable production volumes.
Up-and-down production on NGTL's Upstream James River in the summer of 2019 drove volatility at AECO. Summer 2019 production decreased by at least 300 MMcf/d 21 times, with five dives of 500 MMcf/d, according to S&P Global Platts Analytics. AECO prices regularly spiked and plummeted day to day during the 2019 injection season.Many of the declines were the result of maintenance. NGTL routinely facilitates maintenance by restricting system takeaway to force AECO lower and then letting producers decide who shuts in molecules. This led to extreme price volatility.
Summer 2020 production was much more stable, leading to less volatility at AECO. Although the TSP, which was put into place to increase access to storage, would have also eased volatility, lower NGTL production helped stabilize prices, according to Platts Analytics.
NGTL had enough open capacity that there was no need to reduce throughput and production on the system when maintenance was ongoing. This led to more stable production volumes and less volatile AECO pricing.
For the upcoming injection season, stronger production and no TSP are expected to lead to a return to volatility for AECO, although Platts Analytics forecasts that it should be much less severe than in 2019.
The East Gate is where AECO's marginal molecule will flow through. So, when forecast production rises above capacity at East Gate, Platts Analytics' models indicate production will need to be shut in to balance the NGTL system. These are the days when AECO weakness and volatility are expected, but there are only two periods expected to experience substantial production shut-ins.
These are forecast to occur in July and August. East Gate capacity is restricted to 4.55 Bcf/d July 19-26, while production averages 4.71 Bcf/d. The most extreme case is expected Aug. 17-24. During this period, East Gate capacity will fall to 4.16 Bcf/d, while production is forecast to surge to 4.68 Bcf/d.
However, of the 23 days of potential shut-ins, only four are expected to be in excess of 500 MMcf/d. They are consecutive, meaning AECO should drop and remain weak until maintenance is done. The vast majority of the production curtailment days should see shut-ins lower than 200 MMcf/d.
Still, AECO production is resilient, and shutting in even 200 MMcf/d could mean AECO prices have to take a tumble. These drops, however, are not expected to be as extreme as those during the 2019 injection season.
