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Sumas NatGas Forward Price Weakness Continues Despite Record Power Burn

While the majority of natural gas markets saw forwards prices follow the Nymex higher from Monday June 22 through Thursday June 25, one key western hub softened a bit, despite strong demand in the region due to weak hydro output.

July basis at Northwest Pipeline-Sumas fell some 16.3 cents between Monday and Thursday to reach minus 60 cents/MMBtu, according to NGI’s Forward Look. This drop put the fixed price for July at $2.25, down 4.6 cents for the week.

By comparison, basis prices throughout the rest of the country shifted less than a nickel, and fixed prices climbed between 5 and 13 cents over the same time period. The Nymex July contract was up 11.7 cents.

The weakness in the Sumas forwards market mirrors the persistent low-price environment seen in cash. Cash basis is trading at minus $0.503, the lowest June price on Genscape’s record, with the five-year basis average 15 cents lower at minus $0.35, according to Eric Wienrich, a natural gas analyst with the consultant group.

Interestingly, the softness in both the cash and forwards market is occurring despite strong demand in the region stemming from weak hydro output and unusually warm weather.

So far this month, the Pacific Northwest has had 133 cooling degree days, compared with a five-year average of 41.9 CDDs, Wienrich said.

Hydro generation, meanwhile, has averaged just 167.6 GWh/d this June, down 43% from the five-year daily hydro-generation average, he said.

“As a result, we have seen gas demand in the region really take off, averaging 1.46 Bcf/d,” Wienrich said. “The demand increase is seen solely from the power sector, where June nominations to power plants are averaging 603 MMcf/d, up 486% from the five-year average of 88 MMcf/d.”

Imports have stepped up to take on the lion’s share of the high demand, Wienrich said, with total imports into the region averaging 3.3 Bcf/d, up nearly 640 Bcf/d from the previous three-year average.

The largest factor in imports is Sumas, where June imports are up 228 MMcf/d from last year and up 451 MMcf/d from 2013. Imports via GTN at Kingsgate are also at the highest level seen for the month of June, averaging 1.98 Bcf/d.

“Opal and AECO simply cannot compete with the gas flowing from Canada at Sumas,” Wienrich said. “Their prices, meanwhile, are actually trading higher than they historically have for the month of June, with basis up 10 cents and 26 cents, comparatively from the five-year average.”

Forward prices, however, show Sumas holding a steady premium over AECO, with Sumas July fixed prices ($2.25) sitting Thursday at a 13-cent premium over the AECO July fixed price ($2.117). It should be noted, however, that premium started out the month at almost 30 cents.

“I think that there is a chance that we see the AECO/Sumas spread tighten, but it could return to the 30-cent discount seen at the beginning of the month,” Wienrich said. “We saw the McMahon plant up in British Columbia turnaround on June 6, and it should come back online here at the beginning of July. This will get more gas back into the system, especially flowing down to Sumas, and I would bet we see that spread widen out again and the low Sumas prices continue through the rest of the summer.”

NGI’s Forward Look shows the balance of summer at Sumas settling Thursday at $2.33, while the same package at AECO sat at $2.20.

Wienrich said he expected the strong power burn in the region to continue in the near term, especially as temperatures could reach the highest levels of the summer so far.

Indeed, forecasters with NatGasWeather say the West will become the nation's hottest region this week as strong high pressure dominates, resulting in widespread temperatures in the upper 90s to 100s, which will spill into western Texas and the southern Plains during the middle of next week.

Meanwhile, cooling demand will hit its peak through the end of June into the beginning of July, Wienrich said, with similar trends expected in northern California.

He added there is a good chance of breaking the power plant demand record, which is 834 MMcf/d, reached on Aug. 5, 2010.

Meanwhile, as imports into the Pacific Northwest are running at record pace to cope with high demand, Wienrich said exports have also increased, rising about 326 MMcf/d from the three-year average.

The increased exports are flowing south of the Kemmerer compressor station on Northwest Pipeline into the Opal Hub region, where June flows are averaging 264 MMcf/d, up 230 MMcf/d from last year and from 2013, while also increasing flows onto PG&E via the Malin interconnect, Wienrich said.

Overall, import activity is netting out to an increase of 313 MMcf/d worth of flows staying in the region, he said.

Storage is also coming into play as the region struggles to meet this summer’s demand.

Jackson Prairie has sustained withdrawals for the previous nine days, Wienrich said, with the average withdrawal at 86 MMcf/d.

“While it’s not totally foreign to withdraw gas to meet cooling demand, it is something we usually see in California, not the Pacific Northwest and especially not for such a long stretch of days,” he said.

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