Rising LNG Prices Pushes Algonquin City-gates Benchmark

Algonquin city-gates’ geographic footprint – encompassing deliveries to end-users in Massachusetts, Rhode Island and Connecticut – has limited pipeline inflow capacity, leading the region to import LNG during the winter.

Algonquin Gas Transmission’s pipeline design reduces northbound flow capacity the closer the pipeline gets to Boston, with capacity dropping from around 1.97 Bcf/d at Stony Point in New York to around 1.12 Bcf/d at Burrillville in Rhode Island. Although Maritimes pipeline was designed in part to bring gas into the premium US New England gas market, this hasn’t always worked out as neatly in practice.

Three LNG terminals can bring imported gas to the Algonquin city-gate area: Everett LNG in Boston, Northeast Gateway Deepwater Port offshore Boston and Canaport LNG in Eastern Canada via Maritimes pipeline.

Platts Analytics data shows that LNG imports into the US Northeast averaged 405 MMcf/d in January and February and 554 MMcf/d during the same months in 2020. Most LNG cargos are sourced from Trinidad and Tobago, according to Platts cFlow trade-flow analytics software data.

New England is the only part of the continental US to source gas from LNG imports, with Gulf Coast import terminals having been since converted to export gas or shut down.

This dependence on LNG to meet incremental winter demand has uniquely exposed Algonquin city-gates to global gas prices, with the location needing to compete with buyers in Asia, Europe and South America to attract cargoes.

Storage

Beyond higher LNG prices, part of the higher price environment can be explained by market anxiety over the general supply situation in the Northeast. East storage levels have lagged the five-year average this injection season, as flat production and robust outflow demand cut into storage opportunities.

This ambient sensitivity to storage levels, despite Algonquin city-gates’ relative physical isolation from regional storage, showed up in the most recent forward curve prices.

Algonquin city-gates’ winter strip dropped 74 cents to $8.90/MMBtu after the Energy Information Administration’s Aug. 19 weekly storage report showed a sixth consecutive week of double-digit net builds into East storage, bringing total regional storage levels to 645 Bcf for the week ended Aug. 13.

East storage levels currently sit 7.1% lower than the five-year average of 748 Bcf, down from 9.2% lower this time last month.

Outlook

Winter strip prices will likely continue to be elevated at Algonquin city-gates in the near to medium term, unless global gas price fundamentals undergo a bearish shift.

Warmer-than-average temperatures in Japan and South Korea this autumn could supply that bearish impetus, with Platts reporting that the two countries’ respective meteorological agencies have forecast above-average temperatures that could keep a lid on LNG import demand.