Winter storm gas price effect not over: Analysts
Houston, 10 January (Argus) — US northeast natural gas prices have recovered from their rise to previously unseen highs last week, but analysts expect production freeze-offs and storage depletion will continue to support prices.
Transcontinental Gas pipeline (Transco) zone 6 New York prices rose to higher than $136/mmBtu — the highest level since Argus began publishing indexes in October 2009 — when New York City temperatures plunged to as low as 5°F (-15°C), or 22°F below normal for this time of year. Temperatures in Boston, Massachusetts, fell to as low as -2°F (-19°C) as Algonquin Gas Transmission Citygates prices soared to above $83/mmBtu, also an all-time high.
Many natural gas pipelines in the mid-Atlantic and New England are constrained all year long, which can cause challenges for power generators during times of extremely high demand. The US Energy Information Administration on 5 January reported that major pipelines delivering natural gas into New York and New England were constrained, with average pipeline utilization ranging from 90-100pc on key segments. Williams Partners said it delivered a record amount of natural gas on its Transco line on 5 January at 15 Bcf/d (426mn m³/d).
When spot prices soar from cold weather electric grid operators often opt to dispatch oil-fired generation in place of natural gas-fired units, even though oil emits more pollution. Grid operator ISO-New England this week said some oil-fired generation is already nearing emissions limitations for the month and other power plants are awaiting fuel deliveries that were postponed from the storm.
More moderate weather this week has lowered prices and allowed a window for fuel replenishment. But analysts said the storm could have a lasting effect on prices this year.
The cold spell brought temperatures across much of the eastern half of the country not seen since the winter of 2013-14, and drove demand to record levels, said Barclays Research. The firm said the low temperatures resulted in as much as 4 Bcf/d (113mn m³/d) of production being shut in because of wellhead freeze-offs — when temperatures get so low that water vapor in the natural gas stream freezes and clogs valves.
"Although cash prices rallied close to $7/mmBtu, the rest of the gas curve has failed to react," Barclays said. Even with production expected to grow "significantly" on the year, Barclays said it expects calendar 2018 prices at $3.19/mmBtu compared to the forward curve of $2.74/mmBtu.
The winter began with relatively high levels of underground gas storage, but those levels are also dropping precipitously, said consultancy ICF. And most of the pipeline capacity that has been placed into service since the winter of 2013-14 has been designed to move gas from the Appalachian shale region to the midcontinent and Gulf coast markets, not to demand centers in the mid-Atlantic and New England, ICF said.
"The recent back-to-back warm winters have lulled various segments of the market into a false sense of supply security," ICF said.
Analysts at investment bank Tudor Pickering Holt pegged production freeze-offs level lower than Barclays at 2 Bcf/d, but said a large enough depletion from storage reported this week "could help to keep the commodity afloat" into more moderate weather.