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How a Canadian Pipeline Explosion Foreshadows Shifting Western Gas Dynamics

On October 9, 2018, Enbridge’s Westcoast pipeline ruptured outside of Prince George, British Columbia, removing capacity out of the Montney. While the disruption occurred several hundred miles north of the US and Canadian border, it had far reaching implications, removing at least 1.3 Bcf/d of cross-border capacity into Washington state, and creating a gas shortage in the Pacific Northwest. Since the supply disruption, natural gas prices in Washington and Oregon have increased by as much as $1.15/MMbtu, as fall and colder temperatures continue to roll in. While the outage on Westcoast Pipeline can ultimately be repaired, the resulting supply shortage in the West provides a foreshadowing of what could happen as  Western gas dynamics shift.

Two developments have the potential to drastically alter dynamics in the West: Colorado’s Proposition 112 and/or LNG exports on the West Coast. We’ve discussed the loss of production that could potentially hit the DJ Basin if Proposition 112 passes and the implications of new demand coming online in the form of West Coast LNG. Whether it is a loss of supply or an increase in demand, both will leave western balances shorter.

When the explosion occurred on October 9th, we saw a sharp drop in imported gas into the Pacific Northwest via Gas Transmission Northwest pipeline (GTN) and Northwest Pipeline (NWPL). The chart below shows how flows changed compared to the day before the rupture occurred; imports of Canadian gas on GTN and NWPL decreased by 1.1 Bcf/d virtually overnight. Since the outage, US imports of Canadian gas have dropped by an average of 750 MMcf/d.

Initially, in response to this significant drop in supply there was a swift demand response in Western Washington counties that included everything from stopping the use of natural gas-fueled garbage trucks to outages at Washington refineries. Fortunately, garbage pickups were able to resume service with the help of gas flows from the network of pipes in the West, mapped below.

Over the past two years, as an influx of Permian gas has hit the Rockies, Rockies-to-MidCon pipes have played an increasingly important role by increasing their eastbound flows. However, following the pipeline explosion, it was this same eastbound gas that was diverted as the West’s balance shifted short. As shown below, Ruby and NWPL have increased their flows west at the expense of eastbound flows.

Taking a lesson from this outage, we can see that as the West’s balance became shorter, Rockies gas moving east was the lever that was pulled by the market to balance the region. Want more insight into BTU’s views on gas market dynamics?  Request a sample of our Henry Hub Outlook or our Northeast Gas Outlook.

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Erika Coombs is Senior Manager of Energy Markets at BTU Analytics. She leads the team to deliver energy-market analysis and provides BTU Analytics’ customers with critical information for a variety of energy markets including oil, gas, and NGLs from wellhead to downstream markets. She also oversees BTU Analytics’ oil and gas product suite which includes research on upstream, midstream, breakeven economics, and commodity pricing dynamics. She holds an M.S. in Mineral and Energy Economics from the Colorado School of Mines.

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