Cascadia January 2018 Newsletter

Winter 2018 - January Stuff not found in other newsletters! Page 1FortisBC Looks to Lock In Gas Prices.Are they thinking the market has bottomed and prices may rise? How commercial What does seem clear is that customers feel about the regardless of hedging strategies, concept of hedging and consumers in the west can expect paying a higher natural continued low prices for the gas bill to protect against foreseeable future. Increasing possible price increases. production and lower production break-even costs will continue to keep prices low in an over-supplied market.From FortisBC Customer Survey - FEI 2018 Price Risk Management. The report states \"The latest Wood Mackenzie price forecast for AECO/On January 5, FortisBC filed a take way though, might be that NIT has prices remaining just belowhedging and risk management FortisBC has some expectation $2 per GJ for 2018 to 2020. Theplan designed to reduce price of prices at Stn 2 and AECO forecasted prices remain flat in thevolatility and capture medium (Alberta) tightening. Indeed they medium-term due to continuedterm price opportunities for its say as much, suggesting that pipeline constraints for AECO/NITsales customers. increases in pipeline capacity gas. After 2020, gas prices are and increasing demand will forecasted to rise again asWhile the plan is full of details start to drive prices within the increased demand absorbs excessrelated to risk management and next few years. supply and more outlets for AECO/covers the shorter one year and NIT gas \".five year midterm, it also looks On the other hand, productionat strategies such as costs are down, with the report Additional demand for Northinvestments in gas wells stating \"many major Canadian American gas is expected to becovering up to twenty years. gas producers require market driven by increased powerTheir focus however is largely prices in the range of about $1 generation and industrial demandon the near term of one to three per GJ to $3 per GJ to break- as Alberta begins to phase out coalyears. even and earn a reasonable rate plants and replace them with of return. Some producers natural gas and renewables, butSo what can we glean from the require higher prices than this, more significantly with LNG exportsfiling? The document is well up to about $5 per GJ while and U.S. exports to Mexico.researched and full of detail, as others can make a profit withone might expect. The main market prices below $1 per GJ.\" So, is it time to hedge or just roll with the likelihood that prices will remain low? Both seem good.

Page 2 January 2018Natural Gas Prices in New York Insane - Reach $175 !Heavy snow, blustery winds and constraints. occur when temperatures fallthe highest natural gas spot price and water vapor in theever recorded marked a day of Major pipelines across the region production gathering systemextremes in the gas market on had ongoing operational flow freezes and hinders the flow ofJanuary 3 & 4, 2018 driving problems in effect Thursday and gas.prices over $100 in the Northeast competing demand furtherUS. south, where prices averaged Other production impacts may $127.57, drove up spot prices in occur during cold weatherWith blizzard conditions the next the New York area. events when roads are too icy forday added to the bitterly cold trucks to travel to and from thetemperatures, natural gas spot The $175 gas reported at New production site to unload oilprice ran rampant for the second York would set a record high at tanks, thus shutting-in the well.straight day, including trades as the point, according to historicalhigh as $175 in New York. data, easily beating the previous All of that cold weather produced high of $125 set during the polar a hefty storage withdrawal. WhileMeanwhile gas prices in Alberta vortex-influenced winter of below market expectations, thesurged 72 percent from $2.50 to 2013/14. 206 Bcf withdrawal still came in$4.30 because of the cold more than double the five-yeartemperatures. A powerful, fast-developing average withdrawal of 99 Bcf and storm -- dubbed a \"bomb easily dwarfed the 76 BcfMultiple points also recorded cyclone\" -- struck the East Coast withdrawal a year-ago.$100-plus trades, including overnight on Jan 3, and weatherAlgonquin Citygate at $78.98, outlets were reporting blizzard Meanwhile, in our local marketIroquois Zone 2 (up $60.52 to conditions across the Mid- prices topped out at $3.86 US on$104.44) and Tetco M3 Delivery Atlantic and Northeast, including Jan 3 before settling back to the(up $49.60 to $94.80). strong winds and heavy snowfall mid-$2 range in subsequent in population centres like Boston days. Stn 2, in Northern BCThe conditions driving Thursday, and New York. peaked up to $2.33 CDN, a mildJan 4th incredible spot prices reaction to dramatic events in theappeared to be a perfect storm of With the high demand, east, before dropping back towidespread weather-driven production freeze-offs were the lower prices.demand and pipeline ongoing concern. Freeze-offsLa Nina Hasn't Really Come ...in the West.Most of us remember the cold and snow the Lower Mainland experienced last winter but that hasn'trepeated as was expected. Predictions are that much of the continent will be warmer than normal thismonth, with the latest outlook from the National Oceanic and Atmospheric Administration in the USshowing the probability of higher than normal temperatures from Alaska down to southern Texas.But winter-haters should hold off on rejoicing as by all evidence winter is not over yet. While there is somesubstance to predictions for a January thaw in Eastern Canada, thus far they have been trapped in ahistoric stretch of Arctic cold out there.Out here on the West Coast, meteorologists are still expecting the well pronounced la Nina circulationto govern our weather pattern and that means normal winter weather, including snow in Vancouver andthe Island and certainly more snow at altitude for the ski hills. Either way, it will be wetter than average.The prediction is that local temperatures and patterns will not stray far from normal in the weeks aheadbut there may be a bit more winter weather in the works.

Page 3 January 2018Producers Say No The Biggest Year Yet For U.S.to New Pipeline Shale Gas ProductionIn a strange twist, producers U.S. shale companies are With oil prices suddenly andare arguing that additional expected to ramp up production unexpectedly higher comparedpipeline capacity to move their this year, and higher oil prices to just a few months ago, thegas is a bad thing. could lead to the industry shale industry has all theNational Energy Board (NEB) turning profits for the first time. ingredients it needs for 2018 tohearings for TransCanada be a profitable one, a first for theCorp.’s 305 KM North Montney For years, even when oil prices industry. That could occurMainline natural gas project were trading above $100 per simultaneously with enormouswould deliver additional gas barrel, most shale drillers volumes of fresh supply.from northern BC to the Alberta weren’t profitable. They drilledmarket. rapidly, brought huge volumes Oil prices are sharply higher, anOpponents argue the project of production online in short unexpected windfall to thewould flood an already over- order. Any cash they recouped industry. On top of that, a lot ofsupplied market and push they ploughed back into the drillers are sitting on drilled butprices lower. They are also ground. The debt taken on to uncompleted wells (DUCs),concerned that TransCanada drill new wells was made on the which basically means thatis only building pipe to new assumption that future growth some of the costs have alreadysupply sources while ignoring would translate into bigger been accounted for. If some ofthe expansion of infrastructure earnings, and like any industry those wells are completed thisin areas already served. growing quickly, year, it will lead to a rush of newAECO prices, Alberta natural supply without a huge spendinggas prices, have occasionally Wall Street was quick to pour increase.dipped onto negative territory money into evermore drilling butdue to the glut of natural gas spending has vastly outpaced The DUC list nearly hit 7,500 insupply. earnings. According to The Wall December, up more than 30Natural gas producers now Street Journal, the shale percent from the start of 2017argue that the North Montney industry has spent $265 billion and 2018 is shaping up to be thepipeline project would move more than it has generated since brightest year yet for U.S. shale.natural gas from British 2010.Columbia instead of the now- The EIA expects the U.S. to topcancelled LNG export projects The collapse of oil prices forced 10 million barrels per day (mb/d)and flood the Alberta market, lots of write-downs, defaults, for the first time ever next month,further depressing AECO layoffs and bankruptcies, but with production averaging 10.3prices. then investors were lured back mb/d for 2018. Output will thenCurrently there is an excess of on the promise of lower surge above 11 mb/d by the endnatural gas supply in Western breakeven costs and substantial of 2019, the agency predicts.Canada that is creating efficiency gains.competition for space on For the next few quarters atTransCanada natural gas Profits still proved to be elusive least, shale companies couldpipeline network. and major investors started enjoy some of their bestThe oversupply of natural gas demanding big changes. That numbers ever. And becausein Alberta has ignited a major led to more conservative drilling share prices performed sodivision within the oil-patch, programs and an emphasis on poorly last year, and still lag thewith some companies blaming cash and profits over growth. broader increase in crudeTransCanada Pipeline Ltd for prices, analysts see hugedisconnecting AECO price potential for energy stocks.from other North Americanbenchmarks.

Page 4 January 2018The Round-up demand will likely fall on the low side of normal.by Steve Connelly Overall the temperature for theIn recent Updates, the theme has reporting week was 1 degree F colderbeen about NYMEX’s lacklustre than normal.response to highly bullish marketnews. Well that all changed this week Locally, looking ahead 2 weeks weas NYMEX awoke from its sleepy can expect to experience normalsideways slumber. temperatures for this time of the year.Recall that in last week’s Update we As mentioned earlier, for the weekreported on a record storage ending January 19 a large draw ofwithdrawal of 359 Bcf, demolishing between 260 to 275 Bcf is expected,the previous record of 288 Bcf. to compare to an average of 164 Bcf.NYMEX did rise, but did so far lessthan expected considering the time of For the week ending January 12, theyear. In only 2 weeks, storage EIA reported a modest withdrawal ofdropped from close to average to the 183 Bcf. The withdrawal was lowerbottom of the 5 year recorded range. than both the median market expectation of 199 Bcf and the fiveAs you’ll see this week’s withdrawal year average of 203 Bcf.report is much closer to the average. The overall US storage level has nowWell, next week another large fallen to 12.3% below the seasonalwithdrawal of 260 to 275 Bcf is average.expected and this expectation alonewas enough to push NYMEX Current pricingupwards again. Considering that theaverage withdrawal for the As a result of the NYMEX rise, localcomparable week is 164 Bcf, this market prices have gone up.definitely qualifies as a large draw. However, our natural gas pricesHow much was the market increase? remain relatively close to last week’sFebruary rose $0.47/GJ, with most of thanks to our recent, and predictedthe gains taking place just today. future, warm weather.With NYMEX back on the rise, how The market’s backwardation trendhas our local market at Sumas fared? continues, however the price dip isNot too bad, really. With recent moving further forward in time.moderate temps and no arctic- Overall, all terms have remainedoutflow cold on the horizon, prices close to last week’s values.have gone up but not that much – theFebruary month price rose by only Longer Term Indicative Sumas$0.08/GJ. Pricing 2018 to 2020 - Fixed Daily VolumeThe story’s not over however, as anyNYMEX gains made after the storage The market’s backwardation trendreport is released will have to resist continues, however the price dip isthe downward pull of the warmish moving further forward in time.weather forecast that follows. Overall, all terms have remained close to last week’s values.Cooler West expected .Today's 8- to 14-day US temperatureoutlook from the NOAA is calling forcooler than normal temps in the north/northwest regions. With a warmerEast, and given the highconcentration of heating load there,