Let the Sky Fall - From $200/MMBtu to $1/MMBtu Gas, PNW Market Volatility Continues

Three months ago, the Pacific Northwest natural gas market recorded the highest trade in U.S. spot gas price history. The region at the time was dealing with extreme winter heating demand, a pipeline outage that limited access to gas supply and storage deliverability issues –– all of which were compounding constraints in the power markets. The result was a feeding frenzy that led gas prices to skyrocket to as much as $200/MMBtu at the Sumas, WA, hub on March 1. Fast forward to today — prices there have crumbled, falling to as low as $0.80/MMBtu in trading last week. Winter demand has dissipated, pipeline and storage constraints have eased, and the region is now dealing with an entirely different — even opposite — set of problems. Today, we take a closer look at the factors behind these latest price moves.

In our recent Living in the Wild, Wild West blog, we stated that the winter 2018-19 natural gas market was one of the most chaotic in recent memory, with the NYMEX Henry Hub futures contract swinging from nearly $5/MMBtu in November 2018 to less than $2.60/MMBtu a few months later. The physical market also posted both the highest and lowest spot trades ever seen in the U.S.: the $200/MMBtu at Sumas, WA, (again, on March 1) and a negative-$9.00/MMBtu at Waha in the Permian on April 4. We said in that blog that there’s likely to be more volatility ahead and neither of these hubs has disappointed in that department. A couple of weeks ago in Sitting, Waiting, Wishing, we looked at the ongoing turmoil in the Waha market, which, after recovering from record low, negative prices and treading above zero earlier in May, again plunged into negative territory in the last week of May. The Sumas market too has seen its share of angst in recent weeks, which is the focus of today’s discussion.

The trouble in the Pacific Northwest (PNW) gas market started last fall, when, on October 9, 2018, a rupture on Enbridge’s Westcoast Energy/BC Pipeline system disrupted Canadian gas exports to Washington State at the Sumas border interconnect with Williams’s Northwest Pipeline (NWPL) — one of only a few routes available to move gas supply into the PNW (see Chain Reaction). Enbridge restored service soon thereafter but at a reduced operating pressure, and flows across the border to Sumas have largely remained below year-ago levels. Months of integrity testing on the Westcoast system followed, resulting in prolonged reductions in deliveries to NWPL at Sumas.

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