Trapped Canada Gas Triggers Surge in Midwest Amid Pipe Work

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Gas markets on both sides of the U.S.-Canada border were feeling the heat of a major pipeline shutdown overnight.

The Alliance pipeline, which usually supplies about one-fifth of the U.S. Midwest’s gas needs at this time of year, shut late Thursday after the system was contaminated with hydrogen sulfide from a gas plant operated by Keyera Corp., a midstream company. Gas at Chicago-area hubs jumped on Friday while falling in Canada.

The shutdown is forcing Canadian producers, already struggling to get their gas to market, to curb output and threatens to further boost prices in the central U.S. Canadian gas has meanwhile declined as producers seek another channel for their supplies, said Martin King, an analyst at FirstEnergy Capital Corp. in Calgary.

“This suggests to me that those kind of spot traders, they’re obviously scrambling to find another outlet,” King said. “They’re all piling their gas at Station 2.”

Prices at the Station 2 gas hub in British Columbia tumbled about 80 cents after the Alliance announcement, King said. Gas gained 4.4 percent to $2.7905 per million British thermal units at the CenterPoint North hub near Chicago, the biggest increase in three weeks.

Canadian producers including Seven Generations Energy Ltd., NuVista Energy Ltd. and RMP Energy Inc. have halted some output because of the outage, statements show. Alliance will flare gas near its Alameda compressor station in Saskatchewan, Canada, the company said in a statement yesterday.

TransCanada Constraints

TransCanada Corp. said it was evaluating opportunities to assist customers at 27 stations that were affected by the shutdown.

Suppliers north of the border were already facing constraints on TransCanada’s NGTL system in Alberta because of inspections and repairs ordered by regulators. That work isn’t scheduled to be complete until the fall.

“The direct result of the outage will be to put severe downward pressure on prices in Western Canada,” said Charles Blanchard, an analyst at Bloomberg New Energy Finance in New York. The shutdown will create “moderate upward pressure on prices in the U.S. Midwest,” Blanchard said.

The AECO gas hub in Southern Alberta is among the trading centers that will likely see prices drop, according to a report by Genscape Inc., an energy data company.

Seven Generations fell 2.5 percent to C$13.92 at the close of trading in Toronto, after earlier dropping 6.3 percent, the most intraday since May 6. NuVista fell 6.4 percent to C$4.71.

Investors may overestimate the impact of the Alliance outage for producers, as it will probably only take three or four days to fix, Eric Nuttall, a fund manager at Sprott Asset Management LP in Toronto who owns shares in affected producers including Seven Generations and NuVista, said by e-mail.

Alliance pipeline is a joint venture between Enbridge Income Fund Holdings Inc. and Veresen Inc.

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