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Northeast Gas Market Experiences Price Spikes Due to Pipeline Constraints

So far in 2013, New England has experienced the highest average natural gas and electricity prices in the country. The recent cold blast across the Northeast states has resulted in extreme price increases in key New England gas and power markets. Regional New York gas prices set new multi-year highs with next day cash clearing above $30/mmBtu, while NYMEX February contract remains near $3.50/mmBtu. Algonquin Citygate prices, outside of Boston, rose more than $10 yesterday to average $31.20/mmBtu. A secondary impact of rising fuel prices, but no less important, is the corresponding increase in Northeast index power prices. The index price for Mass Hub Day Ahead Peak power cleared at $226/MWh on Wednesday, while Zone J in NYISO cleared $224/MWh.

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This regional price volatility is primarily driven by an increase in weather-related demand. When temperatures plummet during the peak of winter, weather demand increases at such a rapid rate that major pipelines across the region can become constrained. This has been the case the past few days with local temperatures 15 to 20 degrees below average, resulting in flow volumes at or near maximum pipeline capacity.

Furthermore, LNG import shipments into New Brunswick and the Boston terminals have declined due to global spot cargos directed elsewhere towards higher priced markets, like Brazil and Europe. New England typically relies on LNG for approximately 25%-30% of supply due to limited local gas storage, high winter demand spikes and physical constraints on the pipeline network.  During peak winter days, LNG supply can reach as much as 60% of regional demand.

The fact that most of the regional issues are systemic, in conjunction with the weather forecast calling for another round of arctic air, the next two weeks could be a continuation of record pricing.

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Data and Chart Sources: EIA, NYMEX and Constellation

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