Northeast Cash Tops $200 as Nymex Hits 25-Month Low

A powerful winter storm sent New England cash prices for Friday’s flow skyrocketing past $200 per million Btu as pipelines serving the region warned shippers of penalties for deviating from their scheduled flows in anticipation of severe cold. But Nymex gas futures continued their spiral, plunging to 25-month lows.

Approaching the weekend, forecasts for sub-zero temperatures with wind chills as much as -50°F constrained Northeast gas supply on all sides. Kinder Morgan’s Tennessee Gas Pipeline, a major artery from the Texas Gulf Coast across Appalachia and into New England, on Thursday morning expanded an operational flow order (OFO) to include most of its system — seven of eight of its zones, excluding only the portion serving Texas and Louisiana’s Haynesville Shale.

Iroquois Gas Transmission, which ferries Canadian gas south to markets in New York and New England, issued an OFO Monday to be effective Feb. 1-7.

During normal operations, pipelines allow for customer imbalances — meaning they can either burn more gas or supply less fuel than they had scheduled — if those imbalances are later offset. When more gas flows during periods of exceptionally high demand, pipelines limit that flexibility through OFOs, which can send prices soaring as buyers and sellers compete for limited capacity.

Algonquin Gas Transmission, which serves the Boston area, was already under a systemwide OFO when it reminded customers that its system “is not designed to sustain delivery pressures above contract levels while making non-ratable/accelerated deliveries above scheduled quantities for more than six consecutive hours, to be followed by flows below scheduled quantity for the balance of any 24-hour period.”

Tenn Gas Zone 6 spot prices traded as high as $205/MMBtu for flow Friday to average $78.16/MMBtu, up $65.87 from the day before, according to Energy Intelligence’s daily price survey. Iroquois Zone 2 traded as high as $200/MMBtu and averaged $147.65/MMBtu, up $136.21 from the prior day. Algonquin’s daily high was $150/MMBtu and its average $72.42/MMBtu, up $60.28/MMBtu. Prices at those points fell dramatically on Friday for weekend flow.

The high prices and constraints could drive New England’s power generators to switch from gas to fuel oil. ISO New England, the region’s grid operator, said Thursday it expected to have sufficient generation to meet projected power demand of just above 19,000 megawatts on Friday.

“Notably, heading into the cold weather this weekend, the region’s supply of fuel oil are at their highest levels of the season,” the ISO said. “The expected short duration of the cold weather limits the potential for strain on the region’s stored fuel supplies, including LNG.”

March Gas Slides to $2.41

The Northeast spot market action sharply contrasted with that of the futures market, where little appears able to shake control from bears’ firm grasp.

March gas futures fell another 4.6¢ Friday to a 25-month low of $2.41/MMBtu as traders looked past the brief shot of cold air. Selling pressure was driven in part by the weather outlook for “mild to moderate conditions for the central and eastern regions of the US through at least mid-February,” Gelber & Associates (G&A) analysts noted Friday.

Another factor weighing on the market was yet another below-average storage draw that brought inventories higher relative to historical levels. The US Energy Information Administration reported a 151 billion cubic foot withdrawal for the week ended Jan. 27, decreasing net working gas inventories to 2,583 Bcf. That compares with a year-ago pull of 261 Bcf and the five-year average of 181 Bcf.

The surplus to the five-year average climbed to 163 Bcf, or 6.7%, while the surplus to last year climbed to 222 Bcf, or 9.4%. The latest report also reflected a 5 Bcf downward revision to the draw for the week ending Jan. 20, when it said inventories totaled 2,734 Bcf.

Season-to-date storage withdrawals lag the five-year average by 330 Bcf, G&A noted. Had Freeport LNG — knocked offline since an explosion last June — been exporting all winter, “another roughly 150 Bcf would have been withdrawn … which may have lessened the amount of bearishness in the market,” they added.

How close the market is to the bottom depends on how quickly Freeport can resume its 2 Bcf/d of exports, as well as how severely the latest bout of winter weather affected production.

“Similar to the late December cold blast that temporarily caused a rash of well freeze-offs, production will likely return quickly, but by then it may be that Freeport LNG volumes may start advancing,” G&A said. “Over the course of the next few weeks, it’s not out of the question that imbalances may show even greater signs of tightening.”