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Polar Vortex Sends Some Northeast Gas Prices $30-$60 Higher, Puts Pipes on Alert

Arctic temperatures sweeping much of the country in a Polar Vortex strained pipeline throughputs and pushed natural gas spot prices to record highs in the Northeast. Transco Zone 6 non-NY next-day prices shot higher by $59.76 to average $70.66/MMBtu, while Transco Zone 5 increased by $61.27 to average $72.43/MMBtu, according to NGI’s Daily Gas Price Index.

High prices Monday recorded at Transco Zone 5 ($99), Transco Zone 6 non-NY ($95) and Transco Zone 6 NY ($88) were the three highest prices ever recorded by NGI nationwide (see related story).

In New England at the Algonquin Citygates, gas traded Monday for Tuesday delivery jumped $18.25 to average $34.14/MMBtu. Much of the country was expected to see temperatures well-below zero degrees from Monday evening through Tuesday once windchill factor is accounted for.

A polar vortex (also known as an Arctic cyclone) is an extreme weather event that involves a persistent, large-scale cyclone located near one or both of the planet's geographical poles. This system has broken low temperature records as it sweeps across the country.

With gas demand expected to reach record levels Tuesday due to blistering cold conditions, end-users and utilities in the Northeast on Monday were looking to protect themselves from even higher overdraw penalties, which is likely why some prices spiked by $30 or more on the day.

As an example, Boston Gas Co.'s tariff lists the penalty for excessive overruns as five times the Daily Index for the flow date in question. The Daily Index is the midpoint of Algonquin Citygate and Tenn Zn 6 delivered, which for Tuesday would equal an estimated penalty of $190/MMBtu. In New York, Consolidated Edison of New York, which provides natural gas service in Manhattan, the Bronx, and parts of Queens and Westchester County, said the gas penalty under an OFO is the higher of two times the market price or nine times the "applicable Interruptible or Off-Peak Firm Transport rate."

The plummeting mercury and voracious gas demand drove throughput for one Ohio utility well beyond its January norm. The cold knocked two power generators offline and raised the threat of rotating outages in Texas. Freezing temperatures were expected to hover over the Southeast on Tuesday as the "coldest air mass in years" swept through, according to one forecaster.

"Temperatures Monday night and Tuesday over the interior South and mid-Atlantic will venture into territory that has not been felt in two decades," wrote AccuWeather.com meteorologist Alex Sosnowski in a note released late Monday morning. "Lows will be in the single digits Monday night from Little Rock, AR, to Birmingham, AL; Atlanta; Charlotte, NC; Washington, DC; Philadelphia and New York City."

Dominion East Ohio gas serves about 1.2 million customers overall in the northern, western and eastern portions of Ohio. The company's main system customers were expected to consume 2.3 Bcf during Monday's gas day and then another 2.1 Bcf during Tuesday's gas day, Jeff Murphy, managing director of commercial operations, told NGI. Customers on the company's smaller western system were expected to consume 0.175 Bcf on Monday and 0.155 Bcf on Tuesday.

On the company's main system during a typical January day throughput ranges 1-1.5 Bcf/d and goes as high as 1.7-1.8 Bcf/d during peaks. Monday and Tuesday are "extreme" peak days, Murphy said.

The design day for the Dominion East Ohio main system is for 78 heating degree days (HDD), and Monday was expected to offer 73 HDD. While that's not at design day levels, "it's still what I would refer to as extreme cold," Murphy said.

Dominion East Ohio's western system was seeing even colder weather and was expected to exceed the design day with 81 HDD on Monday, Murphy said. Practicing caution, the utility was making plans in line with the coldest of the multiple weather forecasts to which it subscribes. On Monday the utility was warning customers in western Ohio to conserve gas, while some industrial customers had agreed to cut back consumption.

"We're planning on potentially a new design day [on Monday] over in our west Ohio system and something slightly warmer than design day on our east Ohio system," Murphy said. For Tuesday, both Dominion East Ohio systems were expected to see 65 HDD. As the weather warms later in the week, daily consumption was expected to fall to 1.1-1.5 Bcf, Murphy said.

The utility has its own on-system storage, which it operates, and that was called on heavily with Monday's withdrawal possibly approaching 1 Bcf. "That's a very significant portion of our supply mix going into this period," Murphy said. A typical daily withdrawal is less than 0.5 Bcf. "There are certain years where we will go through an entire winter never having approached 1 Bcf..." Murphy said.

"Adding to the temperatures, of course, are wind speeds; that's a significant factor...What we're looking at are wind speeds in the 20 mile to 30 mile per hour range."

The utility is served by interstate pipelines Dominion Transmission, Tennessee Gas Pipeline, Texas Eastern Transmission, Rockies Express and Columbia Gas Transmission. Murphy said a number of these pipelines had issued critical day notices due to cold temperatures. Most of the notices were restricting non-firm deliveries, Murphy said.

This is the first winter that two Utica Shale gas processing plants are feeding Dominion East Ohio with relatively small but still much-appreciated volumes, Murphy said. This is the first winter that Dominion East Ohio is operating with a "meaningful" amount of residue gas from the plants, he said.

The plants are the Utica East Ohio Midstream Kensington plant and a MarkWest Energy Partners plant in Cadiz, OH. Both plants were delivering at nominated levels on Monday. Murphy would not say how much gas the utility was getting from the plants. Despite being "not a significant percentage" of total throughput, it's still "very important," he said.

Dominion East Ohio has mostly existed the merchant function, so virtually all of the gas supply procurement on its system is done by marketers, Murphy said, and they "did an outstanding job sourcing gas."

Meanwhile in Texas, cold temperatures caused control equipment at two large generating stations to freeze up, knocking the plants offline, according to Dan Woodson, Electric Reliability Council of Texas (ERCOT) director of system operations. The loss of that capacity during a high-demand period drove the grid operator for most of the state to issue a Level 1 and then a Level 2 Energy Emergency Alert Monday morning.

During a teleconference on Monday, Woodson said ERCOT came close to a Stage 3 Emergency, which would have meant rotating outages. The two plants knocked offline and smaller outages added up to a loss of about 3,700 megawatts, he said. No firm load was dropped during the event, although about 1,000 megawatts of load resources were deployed. Had another generator been lost, the system could have entered a level 3 emergency, Woodson said.

The two north-central Texas plants, which he would not identify, were said by Woodson to be back online around midday Monday, but ERCOT was keeping a conservation alert in place for Tuesday as load levels were expected to be high again Tuesday morning.

And in the Northeast, National Grid told NGI that it experienced an enterprise-wide throughput record in the 24-hour period starting from 10 am EST last Friday. The enterprise includes 3.4 million natural gas customers in New York, Massachusetts and Rhode Island. No records were expected to be set in the days ahead as temperatures were not anticipated to be as cold for as long, spokesman David Graves said.

Multiple natural gas pipelines had alerted customers of tightened operating parameters on their systems due to the cold. "With the onset of sustained colder weather, anticipated maximum peaking withdrawals from storage facilities, and the current system operating conditions, [Kinder Morgan's Natural Gas Pipeline] is issuing an operational flow order (OFO) in the market delivery zone effective gas day, Sunday, Jan. 5, 2014, and which will remain in effect until further notice," said one such notice.

ANR Pipe Line warned shippers to maintain sufficient receipt and delivered volumes, minimizing imbalances to ensure system integrity.

Northern Natural called a system overrun limitation for all of its market area zones for Wednesday's gas day due to low system-weighted temperatures.

Tennessee Gas Pipeline said it anticipates "very limited flexibility due to higher pipeline capacity utilization and significantly colder weather this week." Effective 9 a.m. CCT Monday, Tennessee upgraded an "imbalance warning" to a "critical day I" operational flow order for Zones 1 and 2 for all balancing parties.

Columbia Gas Transmission (TCO) said in critical notices posted Monday morning that due to extreme cold expected in parts of Ohio, it had deemed Tuesday and Wednesday to be "transport critical days" in operating areas 5 and 7. The pipeline was enforcing "specialized receipt required" at the Cecil, Paulding and Lebanon pipeline interconnects. The pipeline also declared Monday, Tuesday and Wednesday to be critical days for natural gas storage. By mid-morning, extreme weather conditions and associated firm market demand forced TCO to restrict all scheduling points in Market Area 6 to Zero Non-Firm Deliveries for the timely cycle for Tuesday.

Spectra Energy's Algonquin Gas Transmission system (AGT), a 1,000 mile stretch of pipeline with connections to five major interstate lines that delivers gas to New England, issued a critical notice on Monday. Spectra said most Algonquin segments and meter stations were scheduled to capacity. AGT said it could issue an operational flow order, with any variance in scheduled volumes exceeding 2% subject to a penalty of three times the posted price at Algonquin Citygate.

Spectra also issued a critical notice on its Texas Eastern Transmission system (TE), which connects Gulf Coast supply with markets in Central, Mid-Atlantic and New England States. "Due to continued cold weather and high demand throughout the TE system, TE requires all delivery point operators to keep actual daily takes out of the system less than or equal to scheduled quantities," the notice read.

Meanwhile, Williams issued both a critical notice and operational flow order for its Transcontinental Pipeline (Transco), which delivers gas to customers from South Texas to New York City. "Temperatures well below normal are again forecasted for most of Transco's market area this week," the notice read. "All shippers are requested to manage their system requirements to ensure a concurrent balance of receipts and deliveries."

The natural gas demand surge was felt in the Midwest as well. "Midwest demand reached a historical high at 18.7 Bcf/d compared to last week’s average of 13.2 Bcf/d,” Genscape reported Monday. “Midwest relied heavily on storage withdrawals and imports to meet demand."

The cold temperatures also drove up gas imports from Canada. "Over the weekend, falling temperatures have brought with them an influx of imported gas from Canada," Genscape said. "...U.S. imports of Canadian natural gas have risen from 8,969 thousand MMBtu on Friday flow to 9,763 for Monday. Over the same period, U.S. exports to Canada have fallen from 2,050 thousand MMBtu to just 1,630, resulting in an increase in total U.S. net imports of Canadian gas of 17.5%."

"The natural gas market staged an overnight rally as intense cold in the Midwest, expected to track through the Northeast on Tuesday and Wednesday, drew media coverage as the most intense cold since 1996, but has since retreated again as the forward outlook shows the cold won't last," said Citi Futures Perspective's Tim Evans in a note on Monday. "Of course, with some colder temperatures coming back into the 11-15 day forecast, next week's warm spell doesn't look as though it will persist either. And so we may be looking at a period of volatile temperature swings, with storage flows and choppy price action to match."

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