Opal basis averaged a $0.29/MMBtu premium to Henry Hub last month. This is well above both the prior month and prior year average of ($0.09)/MMBtu and ($0.29)/MMBtu, respectively. Opal basis usually does not reach monthly premiums until November when winter weather settles in over the Western US. Concurrent pipeline maintenance on pipes to Opal, increased Western US natural gas demand, and drops in flows from Canada to the Pacific Northwest all drove the uncharacteristic strength at Opal. The timing of these drivers is shown in the chart below, overlaid on Opal basis. Understanding how these events combined to drive strength is key to understanding whether premiums outside of winter may happen again.
Premium days in August and September were rarely driven by just one event. Pipeline maintenance combined with a jump in natural gas demand in the West drove brief premiums in August and once again at the beginning of September. Mid-September premiums were driven by pipeline maintenance overlapping with drops in flows on the GTN pipeline from Canada to the Pacific Northwest. Lastly, Opal basis climbed above $1.00/MMBtu on September 30 as West gas demand was high and flows dropped on GTN. To evaluate the potential for future non-winter premiums we first need to understand individually why each of these events occurred.
The first driver of strength is pipeline maintenance. September and October are pipeline maintenance season but the maintenance on Overthrust in Wyoming looks to be related to the Wamsutter West Expansion. The project adds 120 MMcf/d of east to west capacity from Wamsutter to Opal and is set to enter service next month. Pipeline constraints often lead to volatility in natural gas prices, but these maintenance events were completed by September 23, and Opal reached its highest premium on September 30, so other factors were also at play here.
Western gas demand events were the most frequent basis-driving events in September, with four distinct events that led to strength at Opal, as labeled in the chart below. The Western US is fundamentally short gas as BTU Analytics has previously discussed in Energy Market Insights and frequently highlights in the Gas Basis Outlook. The West being short supply means that gains in natural gas demand are reflected more strongly than in other regions that have a more balanced market. West natural gas generation gained in August and September on losses from coal generation and wind generation, though the total load was flat year over year. Natural gas’s share of total generation was up 7% year over year in September, while coal generation was down 5% and wind generation was down 2%.
While these demand events contributed to premiums at Opal, particularly in late August and early September, premiums at Opal were much higher in the latter half of the month than these earlier events, while natural gas’s share of generation was the same as the previous events. Mid to late September premiums were also driven by flows on GTN and pipeline maintenance. Flows on GTN from the Foothills pipeline in Canada had multiple sharp days over day drops in August and September.
These drops, at their highest 350 MMcf/d, would not usually drive such premiums in a West basis, but combined with demand events and maintenance, they had a clear impact on Opal pricing. The chart above highlights the other events with which the drops in flows were concurrent. Beginning in early October flows climbed to levels not seen since February, which contributed to downward pressure on Opal in the first half of this month. Natural gas’s share of the total generation was also relatively low during this time.
Each of these events on their own could have a small impact on natural gas prices, but in tandem, they lead to basis strength and volatility like that seen at Opal last month. Production declines and demand growth in the West have led the region to be fundamentally short supply, meaning that demand scarcity events will likely be more frequent in the West. BTU Analytics will highlight our expectations for the West balance and Opal pricing this winter in the next edition of the Gas Basis Update published at the end of the month.