Icy Northeast Sets $76 Price Record; Rest of Market Softer
Many traders likely thought the previous swing price record of $69/MMBtu, set at the Southern California border on Dec. 11, 2000 (see Daily GPI, Dec. 12, 2000), would never be challenged. But the Northeast, starting to resemble a giant cryogenics laboratory, bested that handily Wednesday with a quote of $76 at Iroquois Zone 2.
However, the rest of the market remained unable to derive any coattails support from the massive price strength of the Northeast. Non-Northeast points tended to range from approximately flat to down about half a dollar. In a rather unusual occurrence, Henry Hub was where Wednesday's biggest lost was recorded. Even prices on the Appalachian pipelines Dominion and Columbia Gas, which draw on the most proximate production area to the Northeast, fell about 20-35 cents.
Other delivery points in the Northeast besides Iroquois Zone 2 were seeing similarly stratospheric numbers, recording their daily movement in the tens of dollars. Peak quotes throughout the region were hitting the $55-70 range in most cases.
Transco Zone 6-New York City probably can claim the record for biggest daily trading range ever with a quote spread from $19 to $72. Its average of about $48.50 represented a daily uptick of more than $32. But that wasn't even the largest gain; Iroquois Zone 2 and the Algonquin citygate gained in excess of $37 and $45 respectively.
Further price records may be in store. According to The Weather Channel, the Northeast's invasion of severely cold weather "shows no signs of retreating through Friday. If anything, the frigid onslaught will grow even more agonizing" through Thursday night.
A Gulf Coast marketer said his trading area's softness was responding more to the huge futures declines of the previous two days than to the Northeast price upheaval. Utilities sat on their production-area storage in December, which kept Gulf Coast numbers relatively strong then, but the opposite is true now, he said. More spikes like what the Northeast is undergoing will put "some serious dents" in storage, which would pick up currently weak Gulf prices, he added. The marketer said he'd seen forecasts of Northeast highs in the 40s Monday, so he expects prices to back off around then.
"My boss was saying this morning, 'It sure pays to have that long-haul FT' in circumstances like the current ones," a Northeast utility buyer said. Utilities control the lion's share of firm service on the pipelines, of course, he went on. He figured it was likely interruptible industrials that have been temporarily shifted off their LDC's supplies that were the ones paying the $50-plus peak prices. "That must hurt their annual energy budgets, but I guess they can handle it for a day or two," assuming the stratospheric prices don't last much longer than that, the buyer continued. However, he agreed that Wednesday was unlikely to be the end of record prices because regional winds had been relatively calm, "but they will be kicking in more than before Thursday."
KeySpan is expecting record demand Thursday of 1.49 Bcf/d for its four New England local distribution companies (800,000 customers). Normal for this time of year is 750 MMcf/d. Temperatures are expected to average minus 15 degrees in its New England territory. Liz Arangio, director of gas supply for KeySpan New England, said she heard day-ahead prices were offered at $90/MMBtu. Thursday could be the coldest day on record for most of New England, she said.
The Northeast Gas Association (NGA), the coordinating organization for natural gas suppliers and distributors in the six New England states plus New York, requested that customers in eastern and central Massachusetts, New Hampshire and Rhode Island take steps to conserve gas from Wednesday through Friday evening. "Although NGA expects there will be adequate natural gas supplies to meet demand during this severe cold wave, it reminds everyone to use energy wisely," the group said.
Although the polar air front causing so much misery in the Northeast was spreading into the Mid-Atlantic and lower Midwest, its impact was less harsh in the newly affected areas. Forecasts late last week that the front would encompass nearly the entire U.S. may be proving unfounded. A Houston-based source said his company's weather services did not indicate that very cold weather would reach the city at all.
In noting his final estimation of Thursday morning's storage report showing a draw of 160-170 Bcf, Citigroup analyst Kyle Cooper said the Northeast's cash spikes were related more to local deliverability and infrastructure than to a tight supply/demand balance. "This is an excellent time to own transportation to the market areas and storage in those same areas," Cooper said. "While bearish on price, we are quite bullish on transportation and storage and would own both of those if a futures contract [for the services] existed."
The National Weather Service certainly has a mixed bag in its forecast for the Jan. 19-23 workweek. It anticipates below normal temperatures in the Northeast, Florida and most of Texas extending through New Mexico into the eastern half of Arizona and also into the Rockies. Areas expected to be above normal are most of California and Nevada, along with the Upper Plains and northern reaches of the Rockies.