FYI from PH... Energy Blogcast transcript Out Of This World – Latest Cold Blast Sets New Records For The Canadian Gas Market
Tuesday 01/03/2023 Published by: Martin King
In a part of the world where enduring a cold winter is often seen as a badge of honor, the latest cold blast that descended on Canada just before Christmas — and during Christmas in the U.S. — was another one for the natural gas record books. By almost every measure, the recent frigid temperatures, though not long-lasting, set new Canadian records for daily demand, storage withdrawals, and net exports to the U.S., and went well beyond the records set during Winter Storm Uri in February 2021. In today’s RBN blog, we delve into the latest record-busting Canadian gas data.
Yeah, it’s winter in Canada, where snow, cold, and long, dark nights are countered by plenty of natural gas to keep schools, businesses, and millions of homes warm across the nation — and in many parts of the U.S., where Canadian natural gas is still an important part of the supply mix. That omnipresent blue flame of combusting natural gas is most appreciated when extreme cold snaps set in across parts — or most of — North America, as was the case leading up to and during the Christmas break this year. Unlike Winter Storm Uri 23 months ago (see East is East, West is West and Terminal Frost), which crippled large parts of the U.S. natural gas network for more than a week as far south as the Houston Ship Channel, the latest barrage of Arctic cold that swept across Canada and into the U.S. — known as Winter Storm Elliott — only stayed a few days, but it still managed to generate some havoc — and new records for the Canadian gas market.
It wasn’t that long ago (February 2021) that we last discussed what seemed to be out-of-this-world, record-setting results for the Canadian gas market in You Rock My World. Those records coincided with the aforementioned gas market chaos that came with Winter Storm Uri, where parts of the U.S. market received a bailout thanks to Canadian gas. Though dealing with its own brutal cold snap at the time and record-setting demand, Canadians were happy to open up the valves and send (then) record amounts of natural gas to their southern neighbor when it needed it most, given that significant amounts of U.S. domestic gas production had been shut in due to wellhead freeze-offs stretching from the Bakken to the Permian. Canadian gas exports were instrumental in preventing widespread loss of life in many Northern states during the worst of Uri’s wrath.
The latest large-scale Arctic blast of cold originated in Western Canada on December 17, spread across a wide swath of Canada as far east as the Great Lakes, then penetrated well into the U.S. — as far south as Texas and over to parts of the East Coast. The frigid temperatures and wind chills didn’t seem to have quite the same punch as Uri and dissipated from Western Canada by Christmas Eve, but it was one for the record books in terms of its truly eye-popping impacts on the Canadian gas market that we will get to in a moment.
To get a sense for how cold it was, the epicenter of the latest Arctic wave was in Western Canada, and the energy- and gas-rich province of Alberta seemed to get hit the worst. Though no stranger to cold, the latest incursion was one that caught the attention of even the most seasoned Albertans with its ferocious wind chills that were measured in numerous locations across the province in the minus 50-degree range (Fahrenheit or Celsius — that’s cold!). From the start of the cold wave on December 17 to its end on December 23 (seven days inclusive), we have computed a population-weighted average heating degree day series for Alberta (Figure 1, ascending order left to right) showing that this seven-day cold snap was the second-coldest (red bar) to hit the province since 1900 (1983 being the coldest; blue bar). Yes, it definitely was a pre-Christmas wake-up call.
Figure 1. Alberta Population-Weighted Heating Degree Days, December 17-23, since 1900.
Sources: RBN, Environment Canada, Statistics Canada
Published weekly, the data that appears in RBN’s Canadian NATGAS Billboard gives us a ready grasp of how the Canadian gas market — and indirectly via exports, the U.S. — is being affected when these unpleasant cold blasts appear. One of the best places to start is with gas demand in Alberta, given that temperatures just before Christmas were some of the coldest in the past 123 years and the province typically accounts for a majority of natural gas consumption in Canada. Alberta managed to set a record daily high for gas demand (dashed black oval in left graph in Figure 2) on December 21 at 8.23 Bcf, but the cold also set the second- (8.22 Bcf, December 20), third- (8.18 Bcf, December 22) and fourth-highest days (8.16 Bcf, December 19) for gas demand on either side of December 21. All four of these days easily eclipsed the daily demand mark of 7.69 Bcf on February 9, 2021, (dashed green oval in left graph) before Winter Storm Uri had fully descended on the U.S.
Figure 2. Alberta and Canada Daily Natural Gas Demand. Source: Canadian NATGAS Billboard
Adding to the gas demand story for Alberta is that the province has experienced significant structural demand growth since Uri via greater use of gas in oil sands production and power generation (see Life in the Fast Lane), to the point that Alberta gas demand has been greater than during Uri on more than 20 days since then. As such, when another cold blast bears down on Alberta in the not-too-distant future, the province is almost certain to set another daily gas demand record, possibly before the current heating season has concluded.
To top things off for record gas demand, just as the cold was coming to an end in Western Canada, its icy tentacles were latching onto Canada’s largest population centers in Ontario and Quebec. Though individual daily demand did not set a record in either province, the combined end result for all of Canada was a new daily demand record on December 23 of 18.17 Bcf (dashed red oval in right graph in Figure 2 above), surpassing the Uri-related high of 17.29 Bcf on February 10, 2021 (dashed pink oval). The worst part of this story is that late January and early February can be colder than late December on average, so another round of record demand for Alberta or Canada as a whole could be just weeks away.
Those demand numbers were impressive, but what truly leapt off the worksheets at us was the magnitude of total natural gas storage withdrawals and net exports of natural gas to the U.S. right around Christmas. Let’s first consider natural gas storage activity.
In our Canadian NATGAS Billboard we compute daily gas storage levels and injection/withdrawal activity for Canada’s three western provinces (Alberta, British Columbia, and Saskatchewan) as well as for Eastern Canada (as proxied by storage activity in Ontario). The sum of all these regions yields our total daily storage activity value. On December 23, just as the cold was imposing the last of its wrath on Western Canada, it was reaching its worst in Eastern Canada. The combined result was a single-day record withdrawal of 11.33 Bcf (dashed red circle in Figure 3), with withdrawals in Eastern Canada exceeding 7 Bcf on December 23 and 24 — also new records for this region and theoretically beyond the posted withdrawal capacity limits for storage sites in Ontario. That December 23 record for Canadian withdrawals easily left the prior record withdrawal of 9.86 Bcf (dashed green circle), set during Uri on February 12, 2021, in the dust. Since that immense withdrawal on December 23, Canadian market balances have swung to such an extent that small injections were recorded in the last couple of days of December.
Figure 3. Canadian Daily Natural Gas Storage Activity. Source Canadian NATGAS Billboard
All that storage withdrawal activity during the latest cold snap met not only Canadian domestic demand, but what turned out to be a truly awe-inspiring jump in Canada’s net exports (exports less imports) to the U.S. To give some historical context, Canada has been a net exporter of natural gas to the U.S. for several decades, but the amount fell steadily from the late 2000s (left chart in Figure 4) as the U.S. met more of its own gas needs from growing domestic shale production. Canada’s net exports were cut in half from an average ~9 Bcf/d in 2007 (black bar) to just over 4 Bcf/d by 2020 (orange bar). However, increasing amounts of Canadian gas have been exported to the U.S. since 2020 as an increasing share of U.S. domestic gas production has been sent to LNG exports and shale production growth in the Marcellus/Utica has topped out on regional pipeline constraints in the last two years. The end result has been a gradual recovery in Canadian net exports to 5.6 Bcf/d (blue bar) for 2022.
Figure 4. Annual and Daily Canadian Natural Gas Net Exports to the U.S.
Sources: Energy Information Administration, Canadian NATGAS Billboard
With that brief history lesson in mind, you can get a sense for our astonishment when we saw net exports exceed 10 Bcf on December 23 and reach a Shale Era record of 10.92 Bcf on December 24 (dashed red oval in right graph in Figure 4). This was followed by a couple days that were lower, but still in excess of 10 Bcf. This easily eclipsed the Uri net export high of 9.3 Bcf reached on February 18, 2021 (dashed green oval), and is the highest for daily net exports since a smattering of days in September 2007. Prior to that, one has to go back to January 2007 to find heating-season net exports in excess of 10 Bcf/d. Moreover, based on our daily net export history, there have been only 27 other days since 2000 when net exports have exceeded the December 24 value. Though not quite a daily record, it is easily a record since the U.S. Shale Era took off in the late 2000s. To place one more exclamation point on the latest jump, it was only on December 8 that Canada’s net exports were hovering around 5 Bcf/d thanks to balmy temperatures in the major population centers of eastern North America, so the most recent increase has been more than a doubling off those early December lows.
We should point out that all of the increase in Canadian net exports were through pipeline connections in the Midwest/Great Plains and Northeast, where the wellhead freeze-offs were being felt the worst (Bakken and Marcellus/Utica), and as any U.S.-based gas exports to Canada were drastically curtailed due to regional demand needs. Canada was already exporting large amounts of gas to the West Coast given the region’s cold weather and power generation woes since early December (see Wild, Wild West). When considering regional gas prices for the Midwest and Northeast, it is no wonder that Canadians were happy to send as much gas as pipeline capacity could accommodate. Northeast regional gas prices reached their highest since January 2018 (dashed black circle in left graph in Figure 5) and those in the Midwest (dashed red circle in right graph) were the highest since a single-day, Uri-related spike in February 2021. Note that the Northeast did not really suffer any serious direct impacts from Uri as the storm and cold did not fully reach that far east.
Figure 5. Northeast and Midwest Regional Natural Gas Prices. Source: Natural Gas Intelligence
Cold snaps are a fact of life during winter and the latest Arctic blast could be a precursor to one or two more before the current heating season is over. With gas demand still growing in Canada’s largest gas-consuming (and often coldest) province of Alberta, more demand and storage withdrawal records are likely in the offing. In addition, with the call on U.S. Gulf Coast gas production steadily increasing thanks to LNG exports, while Appalachian production (Marcellus/Utica) is being held in check by regional pipeline constraints, Canadian net export surges beyond what we have just experienced may also be just a matter of time.