An Enbridge expansion project in western Canada is reducing southbound flows into the U.S. PacNW and western Rockies prices are benefiting. The chart below shows how forward markets (dotted lines) for Sumas and NWRox are elevated in high demand winter months.
PacNW Demand Helps Rockies Pricing
Gas basis at Sumas has soared during the past two winters. Since 2018, winter natural gas prices for NWRox in western Wyoming and Sumas at the Washington-Canada border have been elevated due to an outage in Canada on Enbridge’s WestCoast/BC Pipeline. The pipeline can send gas south into the Vancouver area and connect to the U.S.. When demand is elevated in the winter the PacNW becomes a premium destination for gas; However, in the spring and summer, temperatures rise and demand wanes. When winter gas prices at Sumas have risen to attract more supply, NWRox has sent gas north on Northwest Border Pipeline to reach the premium market. Therefore, a rise in Sumas pricing has also benefited NWRox. Unfortunately for CIG, despite its proximity to NWRox, limited westbound pipe capacity for CIG keeps it from materially participating.
The forward curves for Sumas and NWRox this year again reflect a winter premium. Enbridge’s T-South Reliability and Expansion Program on the BC Pipeline (shown on map, right) is a major reason for the continued winter premium. The expansion will upgrade the southern portion of Enbridge’s natural gas transmission system, T-South, which stretches south to Sumas on the Canada-U.S. border. The project isn’t due to be completed until late 2021, so exports to the U.S. would be suppressed all year. Once additional volumes are added to the pipeline and work stops, Sumas will be able to receive more gas and maybe not have to price itself at such a premium to attract as much gas from the Rockies. It could also mean NWRox would command less of a premium over CIG.
Why is the NWRox and CIG spread wide in winter?
The map on the left shows NWRox on the western side of the Rocky Mountains and CIG clearly on the eastern end of the mountain range. Both pricing locations can serve local Rockies demand, but they do differ in pipeline connectivity to the U.S. Midwest to the east, and to the West Coast. NWRox for example can reach The PacNW on Northwest Pipeline, northern California on Ruby, and Southern California on Kern River. The West Coast is a premium market with little local production. It’s an attractive destination to sell gas if you can reach it.
CIG, on the eastern side of the Rockies, has little capacity to send molecules west to compete for West Coast demand. The premium market for CIG is the Midwest, in and around the Chicago market, reached most directly by Tallgrass’s Rockies Express Pipeline (REX). Shippers on CIG can also reach into Texas and populations in the heartland, directly or by making use of other, connected pipes. But these markets have a larger production profiles and prices are typically less attractive than in the Midwest.