In the News:
Northwest Sumas natural gas price basis reaches five-year winter high
Northwest Sumas, located in Washington on the border with Canada, forms the primary natural gas trading hub for consumers in the Pacific Northwest (Washington, Oregon, and Idaho). Natural gas spot prices at Northwest Sumas averaged $4.61 per million British thermal units (MMBtu) for the first 90 days of the 2013-14 winter season (November 1, 2013, to January 29, 2014), according to EIA calculations using data from SNL Energy. This was the highest average natural gas price over these dates since the 2009-10 winter season, and reflected a 45-cent/MMBtu premium over the national benchmark price at Henry Hub, a five-year winter high. Market conditions at Sumas have reversed dramatically since September, when the spot price there traded at more than $1.00/MMBtu below the Henry Hub spot price.
The Pacific Northwest accounts for 3.9% of the total population of the United States and in 2008-12 it accounted for 2.5% of total U.S. natural gas consumption. However, demand there for natural gas can increase significantly during periods of cold weather. Pacific Northwest natural gas consumption averaged 2.4 billion cubic feet per day (Bcf/d) from November 1, 2013, through January 29, 2014, a 0.4 Bcf/d (18%) increase from consumption for the same days during the 2012-13 winter, according to EIA calculations with data from Genscape. Consumption in the Pacific Northwest reached 2.7 Bcf/d in December 2013, 34% above consumption in December 2012, which averaged 2.0 Bcf/d. Consumption was also 8% above year-ago levels during the first 10 days in January, before dipping below year-ago levels over the past three weeks.
The Northwest Sumas spot price has largely correlated with fluctuations in Pacific Northwest natural gas demand. This was particularly the case during December 7-10, 2013, when demand averaged more than 3.3 billion cubic feet per day (Bcf/d). On December 6, 2013, the natural gas price at Sumas spiked to $11.00/MMBtu. This was the highest spot price at Northwest Sumas in nearly five years. It also represented a $6.86/MMBtu premium over the Henry Hub spot price, the highest premium since mid-2006.
A large portion of this winter's higher demand came from residential and commercial heating, which rose because of cooler temperatures. Natural gas consumption by electric generators also rose, averaging 0.7 Bcf/d from November 1, 2013, to January 29, versus 0.4 Bcf/d for the same period last winter, according to EIA calculations with data from Bentek Energy LLC. This increase in demand for space heating has placed additional pressure on gas availability in the Northwest.
Other factors contributing to higher prices at Northwest Sumas include:
- More expensive Canadian supply: Most of the gas that reaches the Northwest Sumas hub comes from western Canada, which flows on Spectra Energy's Westcoast Pipeline to Sumas, where it interconnects with the Northwest Pipeline. From November 1, 2013, to January 29, 2014, the average spot price for gas traded at Niska's AECO Hub in Alberta was $3.41/MMBtu. This was 12% above year-ago levels and more than double spot prices in late September. Inflows from Canada into the Pacific Northwest rose by 25%, or 0.6 Bcf/d, over year-ago levels from November 1, 2013, to January 29, 2014, according to Bentek.
- Strained supply from the Rockies: The Northwest Pipeline also provides Sumas with access to production from basins in the Rocky Mountains. However, supply from the Rockies declined because of wellhead freeze-offs, which occurred at the same time in December as natural gas demand rose in the Pacific Northwest, as well as the southwestern United States, which Rockies production also serves. Gas flowing from the Rockies to the Pacific Northwest decreased 0.5 Bcf/d, or 28%, from November 1, 2013, to January 29, 2014. This has offset most of the increase in Canadian inflows.