Canada Gas Narrows Discount as TransCanada Lowers Shipment Cost

Canadian natural gas traded at its strongest price against U.S. gas in nearly two months as TransCanada Corp. lowered short-term tolls on the country’s largest natural gas pipeline.

Gas shipped from the Alberta AECO hub jumped 47 percent to $2.55 per million British thermal units Friday after TransCanada posted new short-term tolls for October through March. The spread between AECO and the U.S. benchmark Henry Hub gas narrowed to 95 cents, its lowest level since Aug. 1, according to data compiled by Bloomberg.

“They cut prices by anywhere from 50 percent to 75 percent” depending on the route, said Martin King, an analyst with FirstEnergy Capital Corp. Representatives for TransCanada didn’t immediately respond to an e-mail requesting comment on the changes.

TransCanada’s Mainline system is 8,762 miles (14,100 kilometers) of pipelines capable of transporting 7 billion cubic feet of gas a day from Alberta to Vermont. Shipments have been declining for years as cheap supplies of shale gas in the eastern U.S. have priced out Canadian imports. Faced with declining volumes, TransCanada raised short-term tolls in July to try to get shippers to sign on to long-term contracts.

Instead, a record amount of Canadian gas flowed into western storage. Prices this month reached their widest discount to the U.S. benchmark in five years.

Regional gas storage reached 472.7 billion cubic feet last week, or 98 percent of the capacity surveyed by energy information firm Canadian Enerdata Ltd., above the previous record on Oct. 20 last year of 472.5 billion. The discount of AECO gas to Henry Hub reached $2.051 on Sept. 20, its widest level since Sept. 24, 2008.

Market ‘Sensitivity’

The strengthening price of AECO gas due to the toll changes last week “underscores the sensitivity of this market right now, when you’ve got fundamentals stacked up against you, in terms of high storage supplies and weak demand,” King said in an interview from Calgary.

Price are expected to rise once colder weather brings winter heating demand. Weather is expected to be warmer than the normal seasonal average across much of North America over the next two weeks, with temperatures reaching into 80-degree Fahrenheit range in the eastern U.S., according to a forecast today by Commodity Weather Group LLC of Bethesda, Maryland.

“Once it gets down to daytime highs in the single digits (Celsius) and overnight lows well below freezing, then maybe we’ll start to get more of a space heating kick,” King said. “But we also need colder weather really across the rest of the continent as well.”

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