Alberta province's natural gas storage fields near maximum capacity

New York — Alberta remains on track to reach maximum working gas capacity in underground storage before the injection's season typical finale at the end of October, likely leading to suppressed prices at the AECO hub before winter demand kicks off.

The Canadian province is on pace to fill storage before the summer ends, meaning this summer's rapid storage injections will be forced to slow or stop before Oct. 31, according to S&P Global Platts Analytics.

Rising heating demand is unlikely to absorb the lost injection demand and Platts Analytics expects downward pressure on AECO hub prices towards the end of October relative to AECO's current 3 cent/MMBtu discount to Chicago for the October contract.

Platts Analytics' models indicate rising heating demand as fall arrives, along with increased export capacity into the US Pacific Northwest, could allow AECO to mostly balance without congestion issues, although there are risks to these assumptions which could result in weak AECO prices.

The primary risk centers around actual storage capacity in Alberta and where storage sits today. The consensus capacity for Alberta hovers between 470 Bcf and 480 Bcf. Not only is there no operator or government-provided official capacity, but how much is in storage is also unclear. Platts Analytics benchmarks its storage models to lagged data from the Alberta Energy Regulator. However, the AER data only gives monthly injection and withdrawal activity, and not inventory levels.

Platts Analytics' current inventory of 452 Bcf in Alberta is based on monthly benchmarks with a starting inventory that was chosen based on an industry estimate.

Injections have averaged 1 Bcf/d since Sept. 10. As storage nears capacity this gas will need to find another outlet. Assuming inventories sit at 452 Bcf currently and total working gas capacity is approximately 475 Bcf, we get two scenarios where injections can average 462 MMcf/d through the rest of summer for a 470 Bcf capacity scenario or 718 MMcf/d for a 480 Bcf capacity scenario.

In the low case, exports to Northern Border Pipeline would slightly decrease by 8 MMcf/d from current levels. And in the high capacity scenario, exports to Northern Border could fall as much as 250 MMcf/d to allow Alberta to fill, according to Platts Analytics.

If Alberta fields keep filling at 1 Bcf/d, then storage would reach maximum capacity well before withdrawal season begins. In this scenario, a complete or near-complete loss of injection ability would likely put sharp downward pressure on AECO as exports to Northern Border are maxed out and some producers are potentially forced to shut in via economic incentive. Historically, Western Canadian production has increased in October. If that happens this year it will only add to the weak AECO scenario.

It appears likely Alberta will test storage capacity before the summer injection season wraps up. When this happens remains to be seen, but AECO averaging an 11 cent/MMBtu discount to Chicago in October seems too tight of a spread. Platts Analytics' expectation is that AECO will see a sharp discount to the Midwest hub by the end of October.