A recent pipeline expansion has turned the former import point at Niagara into a net exporter of US gas to Canada, creating renewed price volatility in the process as traders sort through the new market dynamic.
On November 1, Tennessee Gas Pipeline placed into service its Northeast Supply Diversification Project, a 250,000 Mcf/d expansion that enhanced delivery of gas from the Marcellus Shale along its 300 Line to the Niagara Falls area and to New England. The project was anchored by 15-year agreements with Marcellus producers Cabot Oil & Gas, Anadarko Energy Services and Seneca Resources.
Prior to the expansion, Niagara -- a point on the US/Canada border that was a traditional route for gas from Western Canada and the Dawn, Ontario, hub to Northeast US markets -- had become highly illiquid. The reason: Marcellus Shale gas dramatically reduced the need for Canadian imports.
"Marcellus pretty much killed off Niagara," a regional trader said this week. "The irony is, Marcellus might also bring it back to life."
Platts did not report any deals at Niagara for the entire month of May and most of June. Deals were reported only five times in August, once in September and six times in October.
Flows through the point have rapidly declined, with the 2012 average high occurring in January at 22,730 Mcf/d. That fell to just 3,071 Mcf/d in June and to a low of 400 Mcf/d in October, according to Platts unit Bentek Energy.
But when the Tennessee Gas project went into service, there was an immediate impact on both flow and price.
Beginning November 2, Niagara saw deals done daily, and traded volumes reported to Platts went from an average of 3,750 Mcf/d between August and October to 12,410 Mcf/d from November 1 through December 31.
Physical flows through Niagara have also gotten a jump start -- but in the other direction.
The 2012 average flow from Canada to the US via Niagara was about 7,430 Mcf/d, according to Bentek. Meanwhile, flows from the US to Canada averaged 380,224 Mcf/d from November 1 through December 31. On Thursday, they stood at 355,186 Mcf, Bentek data showed.
That sea change, while fully expected by market participants, has meant the return of some volatility into what was once a lifeless Niagara market.
Since the project's in-service date, the difference between the lowest and highest prices in intraday trading has widened to 17.5 cents on average through Wednesday. By comparison, the 2012 average differential was 7 cents, while the three-year average is 6 cents, according to Platts historical data.
This differential hit its 2012 peak November 21, when it stood at 40 cents, with the lowest price at $3.90/MMBtu and the highest at $4.30/MMBtu. The last time the differential was so wide was November 16, 2009, when it stood at 43 cents.
Market sources said they are still sifting through the new market realities, which are being partially obscured by volatile Northeast consumption markets that saw extraordinary price spikes several times this winter.
"The situation in Niagara hasn't shaken itself out," another regional trader said. "We've got a couple new players that have shown up, an on-again, off-again winter, crazy markets. We're still trying to figure out what the new normal is, from a trading standpoint."
