Don't Be Afraid, Part 2 - AECO Gas Forwards Mostly Shaking Off Low Alberta Storage

With another month of anemic storage injections in September, Alberta natural gas storage levels remain on track to start the next heating season at a 13-year low. Still, while Alberta gas storage has been lagging well behind in terms of average injection rates and storage levels for many months now, forward winter contract prices for the Western Canadian gas price benchmark of AECO have budged only a little. There is potential for an improvement in storage injection rates during October after a recent regulatory approval affecting the Alberta gas pipeline system, but there is little time remaining in the current injection season to make much of a difference in inventory levels going into winter. Today, we conclude this two-part series with a look at why the AECO forward market remains largely unconcerned with low Alberta gas storage levels.

When we last blogged about Alberta gas storage activity in mid-September, it was clear injections had been very slow in August. Now, with another full month of data, we know that the month of September was no better. Cumulative injections last month totalled a miserly 3 Bcf — putting the month-ending storage level at 318 Bcf — one of the least impressive build-ups in supply for September since the turn of the century. This has kept the cumulative injection for the current storage injection season (April through September) at a 20-year low and left Alberta storage levels at a 13-year low heading into October.

As we outlined in Part 1, some of the reasons for the weak storage injections this year (and for the past couple of years, for that matter) relate to the unique procedural changes undertaken on the TC Energy-owned Alberta gas pipeline network. (We first discussed this in Don’t Do Me Like That). These changes, which came into effect in August 2017, sharply restricted the flow of interruptible-service gas supplies on the pipeline network during periods of pipeline maintenance; previously, firm-capacity flows had been restricted during maintenance. Since the system doesn’t allow firm capacity for gas flows into storage and all injections occur on an interruptible basis, the rule change ended up severely limiting storage injections and undercutting the market’s ability to rebuild stocks as quickly during the non-heating season.

Historically, that kind of a sustained inventory deficit relative to previous years would have sparked a rally in winter forwards pricing, since lower storage levels mean there’s less gas squirreled away to help meet peak winter demand. However, the forward market this year has shown minimal concern heading into heating season.

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