Alliance force majeure to cut natural gas flows to zero for unspecified length of time

Rick Margolin, Senior Natural Gas Analyst
Source:Genscape

Alliance Canada and U.S. pipelines posted notice that the Alliance pipeline will be shut down for an unspecified period of time due to the presence of excess hydrogen sulfide on the mainline.

Alliance Canada and U.S. pipelines posted notice on the evening of August 6, 2015,  that the Alliance pipeline will be shut down for an unspecified period of time due to the presence of excess hydrogen sulfide on the mainline. The event constitutes a force majeure.

 

During the past 30-days, Alliance Canada has been flowing an average 1,792 MMcf/d across the border to Alliance U.S., with single-day flows reaching as high as 1,977 MMcf/d on the roughly 2,000 MMcf/d capacity system. The notice was issued following the close of yesterday’s trading. NGI reports Alliance Interstates price averaged $2.83 yesterday, down $0.11 from the day prior. 

Alliance flows “wet” gas out of British Columbia, Alberta, and Saskatchewan primarily for delivery to the Aux Sable processing plant in Illinois. At the outlet of the Aux Sable processing plant, dry gas gets delivered to a variety of inter- and intrastate pipelines and industrial consumers.  Historically, and during the past 30-days, the bulk of those deliveries go to Vector (50 percent during the past 30-days, or 904 MMcf/d), followed by ANR (30 percent, or 504 MMcf/d), and the Aux Sable plant itself (12 percent, 212 MMcf/d).

Alliance was shut down completely in early October 2012 for pipe relocation activities. During that period, trading activity on Alliance Interstates was suspended and downstream deliveries from the Aux Sable tailgate fell to zero (with the exception of small volumes to a few pipes). The current shut-down will likely cause many upstream producers to shut-in or direct displaced gas to the TransCanada NOVA and/or Westcoast systems where that is an option. 

One producer – Seven Generations – issued a press release on the morning of August 7, 2015 confirming they will halt production during the shut-down.  If producers instead place gas onto NOVA or Westcoast, it will likely place downward pressure on AECO and/or Westcoast Station 2 prices. In addition, Station 2 will be further pressured by the loss of Westcoast’s ability to deliver gas to Alliance, forcing the gas to instead flow southward on Westcoast. Downstream prices around the Chicago market may increase as alternative sources of supply are sought, though, milder weather and the coming weekend may limit a rally.

Much of the information in this blog post came from Genscape's Natural Gas Basis Report, which provide users with information regarding supply, demand, storage, imports, and exports from 16 markets across North America. With direct access to experienced traders and natural gas market analysts, users are provided with advanced notice of price movements, gaining the information needed to make more accurate trading decisions. Click here to learn more about or request a free trial of Genscape's NatGas Basis Reports.

 

 

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