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EIA: July Heat Drove Northeast Gas Prices; Coal Is Making Gains

A heatwave in the Northeast in the middle of July led to regional wholesale gas and power price spikes, as well as near-record gas consumption by Northeast power generators. However, natural gas spot prices averaged $3.62/MMBtu at the Henry Hub during the month, marking a 21-cent decline from June, according to the Energy Information Administration (EIA).

Gas prices in the heat-struck Northeast were much more robust, EIA said in its latest Short Term Energy Outlook, released Tuesday.

The day-ahead gas price at the Algonquin Citygate, which serves Boston consumers, rose to $8.09/MMBtu at the end of trading on July 16. This was its highest level since March 2013 and more than $4/MMBtu greater than the benchmark Henry Hub price ($3.69/MMBtu), EIA said. Additionally, on New York's independent system operator's trading platform, real-time hourly wholesale power prices spiked to more than $800 per megawatt hour on July 17.

Despite recent additions to Northeast pipeline capacity, constraints still limit flows to the region, leading to price spikes during times of high demand. Two weeks later as the Northeast cooled, the Algonquin Citygate went underwater, registering $3.23/MMBtu for trades made Aug. 2, 16 cents less than Henry Hub's $3.39/MMBtu (see Daily GPI, Aug. 5).

EIA said it expects the Henry Hub gas price will increase from an average of $2.75/MMBtu in 2012 to $3.71/MMBtu this year and $3.95/MMBtu in 2014. Despite declines in prices over the past few months, prices still remain substantially above their year-ago levels. (Henry Hub prices last July averaged $2.95/MMBtu, and the average spot prices at most other major trading hubs over the first six months of 2013 increased by 40-60% from the year-ago period.

Natural gas futures prices for November delivery (for the five-day period ending Aug. 1) averaged $3.58/MMBtu. Current options and futures prices imply that market participants place the lower and upper bounds for the 95% confidence interval for November contracts at $2.68/MMBtu and $4.79/MMBtu, respectively, EIA said. At this time a year ago, the natural gas futures contract for November 2012 averaged $3.26/MMBtu and the corresponding lower and upper limits of the 95% confidence interval were $2.13/MMBtu and $4.98/MMBtu, EIA said.

Natural gas consumption, which averaged 69.7 Bcf/d in 2012, will average 69.9 Bcf/d and 69.3 Bcf/d in 2013 and 2014, respectively, EIA said. Colder winter temperatures in 2013 and 2014 (compared with the record-warm temperatures in 2012) are expected to increase the amount of gas used for residential and commercial space heating. However, the projected year-over-year increases in gas prices contribute to declines in gas used for power generation from 25 Bcf/d in 2012 to 22.2 Bcf/d in 2013 and 21.6 Bcf/d in 2014, the agency said.

U.S. electricity generation will grow by 0.5% in 2013 and by 0.4% in 2014, EIA said. Electric generators have been running their existing coal capacity at higher rates so far this year in response to the increasing cost of natural gas relative to coal. During the first half of 2013, EIA estimates generation fueled by coal averaged 4,250 gigawatt hours per day (GWh/d), corresponding to a 39.2% share of total generation.

In contrast, coal's share of total generation during the first half of 2012 was 35.4% (3,810 GWh/d). Coal's recent gains in fuel share are expected to slow during the second half of 2013 when coal's projected share of total generation averages 41.4% compared with 39.3% in the second half of 2012. Natural gas accounted for 30.4% of total generation during 2012, but EIA expects this share to fall to an average of 27.4% during 2013.

Marketed gas production is projected by EIA to increase from 69.2 Bcf/d in 2012 to 69.9 Bcf/d in 2013 and to 70.5 Bcf/d in 2014. Onshore production increases over the forecast period, while federal Gulf of Mexico production from existing fields declines as the economics of onshore drilling remain more favorable, the agency said. Gas pipeline gross imports, which have fallen over the past five years, are projected to fall by 0.2 Bcf/d in 2013 and then remain near 2013 levels in 2014. Liquefied natural gas imports are expected to remain at minimal levels of around 0.4 Bcf/d in both 2013 and 2014.

 Over the last three months, working natural gas storage levels have steadily closed a gap relative to last year and ended July just 370 Bcf shy of the level seen at this time last year. EIA said it expects the gap to narrow further with gas stocks about 130 Bcf, or 3%, lower by the start of the heating season on Nov. 1.

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