Sellers of day-ahead Appalachian natural gas to power plants in the PJM Interconnection left money on the table over the last three months, based on what power prices indicate their supplies could have fetched.
Gas burned for power in PJM, the largest US electric grid, could have been priced 21pc higher than the normal day-ahead market if it came from Tennessee Gas pipeline in zone 4 between compressor stations 315 to 321, based on Argus netback assessments. Appalachian supplies on Columbia Gas Transmission were discounted by only 2pc if sold into the fixed price market instead of to power plants.
Argus day-ahead netback pricing for PJM power plants is based on the heat rates of the generators within a pipeline hub combined with day-ahead power prices. The netbacks assume a power price at which the plant is dispatched based on PJM zonal pricing, with no profit. The day-ahead gas indexes are based on the bilateral trades that have dominated that sector for more than three decades, calculated as a volume-weighted average.
High demand for Appalachian gas to flow southbound on Columbia Gulf Transmission keeps the Appalachian pool of Columbia Gas competitive with power plant needs. Of the trading days in the past three months, there was little advantage in selling daily fixed price pre-scheduled gas or to try to obtain a better price selling to a power plant.
Other parts of PJM had different price trends. Power plants would be prized markets for gas in north central Pennsylvanian, where deliveries from the core Marcellus production areas reach zone 4 of Tennessee Gas pipeline. The day-ahead netback for generation in that gas hub was higher than for pre-scheduled fixed price gas 85pc of the days in the last three months.
Power plants would also pay higher gas prices 60pc of the time compared with the pre-scheduled fixed price market at gas hubs in southwest Pennsylvania, Ohio and West Virginia.
Generators served by gas from the south point of Eastern Gas Transmission could pay gas prices 12pc higher than day-ahead fixed price markets and be dispatched by PJM.
Gas receipts into Tetco zone M-2 would have been valued 5.1pc higher for power plant delivery.
The advantage accrued in selling to power plants is often the result of high day-ahead power prices sustained over a weekend. Fixed gas prices for flow Saturday through Monday are negotiated on a Friday, but day-ahead power is repriced each calendar day. If the power price keeps rising, gas sellers that concluded business on Friday have lost opportunities.
The brief temperature surge above 90°F (32°C) for some northeast cities at the end of the third week of May, combined with gains in the futures market, pushed Marcellus gas prices above $7/mmBtu.
But power prices were so high to meet air conditioning load that output in PJM could clear the market when fueled by gas priced at $10/mmBtu or higher.
