Higher inflows, full storage set to shield PNW spot gas prices from heat wave

With very hot temperatures forecast to blanket the US Pacific Northwest during the week ending July 29, full storage levels and increased inflow capacity from Canada could help insulate regional spot gas prices from the kind of demand-related price spikes recently observed in the Northeast.

CustomWeather forecast that the average Pacific Northwest temperature will rise into the mid- to high-70s Fahrenheit starting July 26, with the scorching temperatures persisting through at least July 31. The region's daily average temperature is typically in the low 70s for the second half of July.

Pacific Northwest spot gas prices, such as Sumas and GTN, Kingsgate, have seen large discounts to cash Henry Hub this July compared with last. GTN, Kingsgate has averaged a $2.50/MMBtu discount so far this month, more than four times wider than the 59-cent discount observed during the same time last year. Sumas has averaged a $1.96 discount month to date, compared with a 21-cent discount last July.

A major driver of the region's relative price weakness this summer has had to do with soaring hydropower generation, which has reduced demand for gas-fired generation. Month-to-date hydropower generation in the Bonneville Power Administration footprint has averaged 279 GWh/d, up 55% from the corresponding days in 2021.

Beyond the more abundant hydropower generation, several factors on the gas side could also keep a lid on regional spot gas prices in the near-term even as daily temperatures climb towards the 80 degree F level.

Inflows from Canada

The Pacific Northwest heat wave is set to coincide with an increase in Western Canada inflow capacity.

Capacity through Kingsgate – one of the two main routes for Canadian gas to cross into the Pacific Northwest – is scheduled to expand 467 MMcf, or 24%, to 2.367 Bcf July 26.

Gas Transmission Northwest had limited inflows through Kingsgate, one of the two main routes for Canadian gas to cross into the Northwest, to 1.9 Bcf/d July 21-25 while performing modifications on Eastport Station 3, according to a July 19 critical notice.

The pipeline operator has embarked on a planned maintenance schedule that will keep Flow Past Kingsgate below full operational capacity – around 2.65-2.75 Bcf/d – through at least the end of October.

In addition to the higher Kingsgate capacity, more gas may be available to flow to the other major border crossing point, Sumas, than previously expected.

Westcoast Energy, which supplies gas to Sumas, has postponed a planned outage on its Alberta East 26-inch system that was set to begin July 27, citing the discovery of active bird nests.

Storage levels

Full storage levels at the region's largest gas storage facility could also shield regional spot gas prices against sudden sharp increases.

Jackson Prairie has seen working gas levels climb more than 3 Bcf since the start of July to reach the full capacity of 25 Bcf by July 16. As a result, Northwest Pipeline began restricting daily injections into the facility to 150,000 MMcf/d as of July 14.

The storage injection restrictions at Jackson Prairie reduces the places gas supply can go for daily balancing, adding looseness to regional supply-demand balances that could prove bearish for spot prices.