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FERC: More, Cheaper Gas for Winter

Since last year, gas supplies are higher, prices are lower, the forward curve is friendlier to buyers, but winter is still a wild card, FERC staff told the Commission last Thursday during the Winter 2012-2013 Energy Market Assessment presentation.

"Current natural gas prices and winter forwards are the lowest we have seen in 10 years," said Federal Energy Regulatory Commission (FERC) staffer Eric Primosch of the Commission's Office of Enforcement. "The U.S. natural gas market is well supplied, with production at almost 40-year highs and inventories approaching last year's record.

"This should help keep natural gas prices relatively low into the winter, assuming normal winter weather, and also help moderate electric prices."

Primosch offered a snapshot of prices in 12 regions derived from IntercontinentalExchange data that showed declines across the board from a year ago. Prices at Henry Hub are down 36% year to date; Chicago is down 37%; Southern California, 42%. And in the Northeast, gas on Algonquin is 35% lower, and Transco Zone 6 in New York is down by 37%.

"During much of 2012, regional gas prices traded in a tight range of $2/MMBtu in the Gulf Coast and the Rockies to $3.50/MMBtu in the Northeast," Primosch said. "The highest prices are in New England, New York and Florida due to growing natural gas demand and pipeline bottlenecks." In Southern California, the outage of the San Onofre Nuclear Generating Station has increased reliance on gas-fired plants (see NGI, July 16), he said.

"Staff expects regional gas prices to remain in this tight range through the winter, although there could be occasional regional price spikes due to cold weather events or pipeline outages," Primosch said.

Credit for the anticipated price stability is owed to the robust gas supply outlook, of course, which in turn is thanks to growing production of gas from shale plays. Citing data from Bentek Energy LLC and the Energy Information Administration, Primosch told commissioners dry gas production is up 4% from a year ago, contributing to an overall supply increase of 3% in spite of a 53% decline in gas sendout from liquefied natural gas (LNG) plants and a 5% decline in net imports from Canada.

"Most of the [supply] growth was in the Northeast, which grew by 3.1 Bcf/d, or 63%, driven by strong growth in Marcellus Shale gas production," Primosch said. "However, the rate of growth in the rest of the country has slowed, and dry natural gas production appears to have leveled off at around 63.5 Bcf/d in 2012, but still the highest production since the early 1970s.

"Shale gas now accounts for at least 34% of total U.S. natural gas production, up from 23% in 2010."

Complementing supply, gas storage inventories are up 3% from a year ago, he added.

This year the assessment paid particular attention to the New England market, where pipeline constraints are possible, more gas is being burnt in power plants and LNG imports are down, FERC's Ryan Jett, also of the Office of Enforcement, told commissioners.

"In the event of a colder-than-normal winter, or extended cold spells, New England could experience some tightening of supply," Jett said. "In particular, New England could see high winter power burn, which adds to winter peak demand from non-power sectors. Combined with the likelihood of lower LNG imports compared to last year and high utilization of pipelines bringing Gulf Coast and Marcellus gas into the region, this could lead to price spikes."

New England can access gas from three LNG facilities, Everett LNG in Boston Harbor and the offshore terminals Neptune and Northeast Gateway. The offshore terminals are unlikely to receive cargoes this winter because of low U.S. gas prices, Jett said. "However, Everett's operator expects to see adequate cargoes through the winter because they have long-term supply contracts," he said. "This should ensure that the Mystic power plant units 8 and 9 receive enough gas to run throughout the winter, although sendout into the surrounding gas market may be less than previous years."

But imports to the Canaport LNG terminal are down 49% from a year ago, Jett said. And production from the Sable Island Offshore Energy Project is down 55% from last year. Sable Island sends on average 80 MMcf/d into New England, down sharply from the 300 MMcf/d it supplied in 2008, Jett said.

Encana Corp.'s Deep Panuke Offshore Energy Project off the Nova Scotia coast could have contributed supply if it were going to meet its previously scheduled in-service date next month. However, last week Encana said the project had been delayed yet again (see related story). During his presentation, Jett had expressed skepticism that Deep Panuke would be online this year. "...Deep Panuke has already missed two scheduled in-service deadlines over the years, which introduces some uncertainty to the December in-service date," he said prior to the announcement of the latest delay.

Pipeline constraints on Tennessee Gas Pipeline near Boston and along the Algonquin Transmission System also are cause for concern, Jett said. "Constraints...could result in price spikes for the system given that we have seen a 7% growth in demand from power generators [in the region] in 2012," Jett said. "If we have a cold winter in New England, residential and commercial demand will increase along with power demand, potentially causing instances where there is a sustained flow above peak design capacity.

"This may result in regional price volatility and tightness in supply, with a possibility of interruption to pipeline customers with interruptible service."

Gas-fired power generators would be most at risk, Jett said, but many could switch to backup fuels if necessary. Local distribution customers are not expected to encounter supply or deliverability problems.

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