CIBC NotesEQUITY RESEARCH
July 14, 2022 Industry Update
The Natural Gas Guide: AECO Basis Widens
On WCSB Production Surge
Japan To Reactivate Nuclear Power Plants
A Few Things We Are Watching
WCSB field receipts surge into July following maintenance related
outages through Q2/22. WCSB field receipts increased to 16.9 Bcf/d, while
shoulder season demand remained at 6 Bcf/d. Western Canadian storage
increased to 246 Bcf (+13 Bcf W/W) but remains well below the five-year
average of 332 Bcf. The gap between Western Canadian storage and its
five-year average has been narrowing for the past two weeks as production
levels are being restored following maintenance through May and June.
Given upcoming outages on NGTL and Westcoast systems, we expect
WCSB basis differentials will remain wide through August. NYMEX traded
higher while AECO and Station 2 traded lower this week, with NYMEX
closing at US$6.81/MMBtu Wednesday (up US$1.16/MMBtu W/W), AECO
closing at US$3.43/MMBtu (down US$0.40/MMBtu W/W), and Station 2
closing at US$3.35/MMBtu (down US$0.39/MMBtu W/W). AECO basis
widened to US$3.38/MMBtu below NYMEX (-US$1.82/MMBtu last week)
and Station 2 basis widened to US$3.46/MMBtu (-US$1.91/MMBtu last
week).
Heat wave and strong U.S. natural gas power burn has helped displace
Freeport outage. U.S. working gas in storage was 2,369 Bcf last week. This
represents a net increase of 58 Bcf from the week before, which was in line
with consensus estimates of 58 Bcf. Stocks were 252 Bcf less than 2021
levels at this time, and 319 Bcf below the five-year average. The pace of
injection has moderated over the past two weeks as strong power demand
has offset some of the lost LNG demand from Freeport. Weather forecasts
point to hotter than normal temperatures continuing, as Texas recorded an
all-time high for electricity demand. The average flow of natural gas to U.S.
LNG facilities (ex-Freeport) in July has increased by ~ 0.5 Bcf/d so far versus
May and June with Calcasieu Pass volumes increasing according to Platts.
Canada issued a sanctions waiver in order to return Nord Stream 1
turbines to Germany. To ensure the continued flow of natural gas to
Europe, Canada announced it would send back the turbines to Germany,
and following its annual maintenance, Nord Stream 1 is expected to return to
service on July 22. However, there remains a risk that Russia may decide to
delay restarting, or may only partially restart, the pipeline. Multiple LNG
facilities throughout the globe are offline for maintenance activities, resulting
in lower-than-normal utilization rates. With JKM prices surging alongside
TTF, the prime minister of Japan ordered the reactivation of nine nuclear
power plants. European storage increased by 101 Bcf W/W to close at 2,354
Bcf, 127 Bcf below the five-year average. U.K. NBP closed Wednesday at
US$31.91/MMBtu (up US$11.46/MMBtu W/W), while Netherlands TTF
closed at US$52.55/MMBtu (up US$0.25 W/W). Japan Korea Marker pricing
was higher, closing at US$39.21/MMBtu (up US$0.59/MMBtu W/W).