Viewpoint: US northeast gas prices seen rising

Natural gas prices in the US northeast are likely to find steady support this winter from below-normal inventories even if forecasts for a mild-to-normal winter come to fruition.

December bid week prices and forward prices for the balance of the winter at three key demand indexes indicate increasing market tightness in the coming weeks and months. Extremely cold weather in January 2018 pushed spot prices at those indexes to record highs. Rising bid week and forward prices are a sign that gas buyers in the region are seeking to avoid getting caught short during a cold snap again this winter, even though forecasts show the potential for a warmer-than-average winter.

December 2018 bid week prices at Algonquin Gas Transmission Citygates and Tennessee Gas pipeline's (TGP) 200 Line in zone 6 — two indexes that indicate New England demand — were significantly higher than in December 2017 bid week. The citygates December 2018 bid week price of $10.35/mmBtu is 76pc higher than a year earlier, while the 200 Line's $11.84/mmBtu bid week was 83pc higher. December 2018 bid week at mid-Atlantic point Transcontinental Gas pipeline (Transco) zone 6 New York was 52pc higher than a year earlier at $6.67/mmBtu.

Argus forward prices at those indexes suggest that while cold weather in January and February will support heating demand and higher prices during those months, milder weather in March could result in prices dropping. Algonquin Citygates forwards for January-March 2019 are averaging near $9/mmBtu, nearly 4pc higher than the spot price value in January-March 2018. Forwards at the TGP 200 Line are also above $9/mmBtu, but nearly 2pc lower than the same period this year. And Transco zone 6 New York's balance of the winter is down by 8pc from its year-earlier value of about $8/mmBtu.

The price increases are primarily driven by lower-than-average inventories, which have stoked market concerns of a winter shortfall. An unusually hot summer followed by a few early winter cold snaps have prevented regional inventories from fully recovering from the extreme cold weather in January 2018. East stockpiles as of 30 November were 14pc below a year-earlier and also 14pc below the five-year average, according to the US Energy Information Administration.

Current forecasts through February 2019 are favoring above-normal seasonal temperatures in the US, according to the National Weather Service. Electric grid operator ISO-New England said its forecasts show warmer winter temperatures and average precipitation.

Grid operators ISO-New England, New York ISO and mid-Atlantic operator The PJM Interconnection said they expect to have the necessary resources to meet forecast peak demand this winter. The New England grid added the caveat that operations could become challenging if demand is higher than projected.

Winter 2017-18 "demonstrated just how much weather can impact power system operations, not just in terms of consumer demand for electricity, but in the ability of generators to access fuel," the ISO's vice-president of system operations Peter Brandien said.