A pipeline maintenance project that began last week on one of the biggest routes for Canadian natural gas imports blew out spot price spreads to downstream Midwest markets, forcing another pipeline to ramp up flows to compensate to limit impacts.
TC Energy Corp.’s Great Lakes Gas Transmission (GLGT) system started a seven-month project May 13 to upgrade and replace four compressor stations (CS). In the first phase of the project running until August 2, GLGT’s Cloquet CS and Boyne Falls CS are undergoing automation upgrades and panel replacements. GLGT plans to also overhaul the Deer River CS power unit.
During this phase, eastbound flow capacity has been cut by about 22% through the Emerson CS near the Canadian border, according to a notice published by GLGT. The station is operating now at a capacity of 1.255 Bcf/d, down by 350,000 MMBtu/d from 1.605 Bcf/d, according to Wood Mackenzie data.
The constraints come as the GLGT system posted record deliveries in the first quarter, TC Energy said on its earnings call this month. And indeed, flows during the project have run right up against the station’s limited capacity.
With supply constrained, downstream prices have risen relative to the NGI’s Emerson cash price.
In the first half of May, the Chicago Citygate price spread to Emerson quadrupled to 91.5 cents/MMBtu, a seven-month high – excluding a brief spike during January’s winter freeze. Opposite price trends for the two hubs drove the widening: Chicago Citygate climbed 46.5 cents to $1.890, while Emersen shed 22.5 cents to 97.5 cents by May 15. The spread narrowed to 73.0 cents on Thursday (May 23) as Emerson turned higher over the past week.
To the west, price spreads in the Midcontinent also have widened. Northern Natural Demarc more than tripled to a premium of 82.0 cents over Emerson from May 1-16, the day after the work began. That was also a seven-month high for the spread, excluding the January freeze.
Viking To The Rescue?
The Viking Gas Transmission system, which like GLGT receives gas from TC’s mainline, has increased flows on its system that runs south along the western side of Minnesota and then southeast into Wisconsin.
Southbound flows through Viking’s Emerson station have averaged 388 MMcf/d in May, less than half of the design capacity of 892 MMcf/d, according to NGI markets analyst Josiah Clinedinst. By comparison, flows through GLGT’s Emerson station have fallen by an average 304 MMcf/d since the maintenance project began.
“If Viking Gas were to make up this current difference, its daily average flow would need to be 692 MMcf/d,” Clinedinst said. That amounts to a 78% utilization rate of the station’s 892 MMcf/d design capacity, according to the analyst.
However, operational capacity has been lower than design, Clinedinst added. “Therefore, Viking Gas may not be able to completely supplement all the gas which usually flows into Great Lakes at Emerson during the Great Lakes maintenance period.”
Indeed, Iron River Eastbound, a Great Lakes throughput meter which measures flow downstream of the possible reroute, has posted daily flows cut by around 280,000 MMBtu since the May 13, “indicating that no reroute has taken place as of yet,” Wood Mackenzie analyst Alex Sealey said Friday.
Wood Mackenzie analyst Nadeem Ahmed estimated that reduced flows on GLGT in the absence of reroutes on Viking could depress Canadian gas imports by 6.65 Bcf in May, 10.5 Bcf in June and 10.85 Bcf in July.
In the second phase of the project starting August 5, the company plans to conduct similar work at its Iron River Station 6 CS and Farwell CS. But during this time, the cuts would be less sharp. Eastbound flows would be reduced by 6% from the pre-project rate until November.
Canadian net gas imports dipped slightly in the days after the maintenance work began but have since rebounded, according to NGI’s Canada Border Tracker. Net Canadian imports stood at 5.49 Bcf/d on May 23, up from around 5.2 Bcf/d right before the work began, NGI data show.
Total imports into the Midcontinent totaled 3.58 Bcf/d on May 23, NGI data show.
Meanwhile, north of the border, Canadian natural gas prices have been among the weakest in North America most of the spring amid near-record levels of production. Westcoast Station 2 prices in western Canada averaged just C10.0 cents/GJ on Friday (May 17). It had rebounded to C98.0 cents by Thursday. Similarly, Empress has trended lower in the spring and averaged C$1.305 on Thursday.
