Dawn Gas Prices Respond Quickly to NEB Toll Decision
Natural gas prices in southern Ontario have already responded to the approval by Canada’s National Energy Board (NEB) of a discounted C$0.77/GJ toll on the TransCanada Mainline from Empress in Alberta to the Dawn trading hub, where gas from western Canada is competing directly with US shale gas imports.
Martin King, director of institutional research at investment bank GMP FirstEnergy Securities, said in a September 25 research note that the market’s reaction to the decision, rendered late on September 21, appeared the next day in trading of the Nymex-Dawn spread for the 2017-2018 gas year, which runs from November 1, 2017 to October 31, 2018.
“This spread promptly widened by US$0.05/mn Btu to –US$0.15/mn Btu (ie Dawn at a deeper discount to Nymex) the next day,” King said in the research note. “With the Rover pipeline slowly gearing up for full completion in the first quarter next year and sending up to 1bn ft3/day of gas from the Marcellus into Dawn, the additional gas volumes from Empress have clearly put a bearish spin on the Dawn market.”
The Dawn price developments are the latest changes in a North American natural gas market that is rapidly evolving as increased shale gas volumes from the Marcellus and Utica basins in the northeastern US come into the system and LNG exports from Louisiana and Maryland begin to ramp up.
The result, King said in a second research note on September 27, is a total “pull” on US natural gas that could increase by more than 15bn ft3/day between 2017 and 2021, a four-year span that he suggested “will test the mettle” of the gas industry to “see if all of those molecules can be made available to the market.”
“This is a major structural shift in the demand for natural gas, the likes of which has not been seen in the US since the late 1960s,” King went on. “A small snapshot of this change can be seen in the monthly net export picture for the US in which the last few months of data have seen the US become a net exporter of natural gas for the first time. This trend is going to deepen for many years to come.”
Marcellus shale gas production is projected to average 17.46bn ft3/day this year but increase to 19.23bn ft3/day in 2018 and to 20.71bn ft3/day in 2019. Utica production will climb to 7.56bn ft3/day in 2019 from 4.49bn ft3/day this year, the research note said.
At the same time, global demand for US LNG exports is looking to be even stronger than GMP FirstEnergy initially expected, as buyers are drawn to what are still considered bargain natural gas prices in the US. GMP FirstEnergy’s current LNG export outlook increases from a minor 500mn ft3/day in 2016, with the startup of Cheniere Energy’s first trains at Sabine Pass in Louisiana, to nearly 11bn ft3/day in 2021.
For the rest of this year alone, King said, US gas flows to export will jump by 1.4bn ft3/day as Train 4 at Sabine Pass is put into service and the first train at Dominion Energy’s 5.25mn metric tons/year Cove Point terminal in Maryland is commissioned. Making a modest contribution to the export pull are deliveries to Mexico, which GMP FirstEnergy expects will climb to 5.9bn ft3/day in 2021 from 4.3bn ft3/day this year.
“Obviously, our export outlook represents the bulk of the demand needs being placed on natural gas going forward,” King said.
Dale Lunan