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Bitter Cold Sends New York Prices to Spike of $60

High temperatures only in the teens sent demand soaring in New York City Monday, driving natural gas spot prices to a high of $60 at Transco Zone 6 in New York. The average came quite a bit lower at near $40 and the high wasn't near its $72/MMBtu record set Jan. 14, 2004 -- the average that day was $44.81. Nevertheless, prices at Zone 6 New York were up more than $24/MMBtu from daily spot prices on Friday. Most other Northeast points were up only $3-5 from Friday's levels.

"It's general fear that you feel today, fear that your transportation will get cut or somehow your supply won't show up," said a Gulf Coast and Northeast marketer. "If you are flowing it, you probably are fine, but if it stops and has to come back on, then you risk getting cut. Tennessee and some of the other pipes have long lists of allocations. You don't want to commit yourself to something that you can't make up at higher prices. You really have to make sure you don't screw up at these price levels."

He said it was "crazy" that people were paying $60 for gas in New York City. "Sure seems outrageous. I saw about five to 10 transactions go through at around that level on [Intercontinental Exchange]. I guess some retail aggregators believe they can pass through those costs."

Pipeline and local distribution company penalties can be very steep during critical periods. Another marketer questioned how prices could reach $60 on Transco when penalties were $50. "Shippers should just take gas from the pipe and pay the pipe back at a lower rate," he said. Transco spokesman Chris Stockton said the pipeline's penalties during operational flow orders are either $50/Dth or three times the highest weekly average spot price for that zone in the month of the infraction, whichever is higher. However, an operational flow order currently is not in effect. Transco reported constraints on interruptible and secondary firm capacity at Station 167 in South Virginia, Station 190, the Linden Regulator Station in New Jersey, its Mobile Bay Lateral, and stations 35, 40, 50 and 60. All gas flowing on firm capacity was unaffected.

Chicago-based Nicor declared a critical operating condition Saturday though Monday with $50 penalties for noncompliance, a Midwest marketer said. He also noted that current spot prices favor transporting gas out of Chicago to the Gulf Coast. Tennessee's 500 Leg in the mid $10s was priced higher than the Chicago Hub, which averaged in the $9.30s Monday.

"It made sense to move gas backwards out of Chicago. Over the weekend we were moving gas from the Gulf to Chicago because Chicago prices were so strong, but now we've turned around and started shipping gas back to the Gulf down Midwestern."

Another unusual situation was the low prices at Columbia Gas (TCo) compared to the Gulf. TCo averaged in the $7.30s, down 50 cents from Friday, while Columbia Gulf came in at more than $9.00, up 94 cents from Friday. Last week, Bentek Energy noted that gas flows in late January and earlier this month at Leach, KY, which is where Columbia Gulf delivers gas into the Columbia Gas system, were sharply lower (more than 50%) than levels at the same time last year. Bentek reported that flows into Columbia Gas at Leach, KY, from sister pipeline Columbia Gulf have averaged about 818 MMcf/d since Jan. 13, down 50% from flows in January 2006.

That illustrates the significant demand seen in the South, Gulf Coast and Midcontinent regions because of the cold. "Clearly, prices are telling the market to keep Gulf gas south of Leach," Bentek said. While pipeline maintenance has been partly responsible for the declines in flows north, strong demand throughout the Gulf Coast and Midcontinent regions has been the major factor.

Southern Natural and Tennessee's 500 Leg were among the premium points in the Gulf Coast region Monday with averages at more than $10.50 and peaks of more than $11. "Southern started out around $11.30 and then started coming off. I'm not sure why it started so high. It ended in the low $9s." Prices throughout the Gulf Coast region were up 50 cents to $1.70 from levels on Friday.

While New York City was the high point in the Northeast, Algonquin also hit $20 and averaged in the $17.20s, and Iroquois Zone 2 jumped to a high of $21 and averaged in the $17.80s, up more than $5 from levels on Friday. "It's pretty tight up here and prices are very high. All interruptible services are curtailed. But we've seen no major operational problems. It's going to be a strong week of demand. But those highs at New York just didn't find their way into Tennessee Zone 6 and Algonquin for whatever reason. I think you'll see prices weaken as the week goes on. It's just not going to be as crazy cold on Wednesday as it is today."

Temperatures were expected to be more than 20 degrees below normal across the northern Midwest Monday and Tuesday. Temperatures will average from 8 degrees to 12 degrees below normal across most of the northern U.S. through Feb. 14, according to Rockville, MD-based MDA EarthSat Energy Weather. Colder-than-average weather will persist across the eastern half of the U.S. through Feb. 19.

A Northeast LDC also reported no operational problems. "It's cold but everything is flowing. We're all about reliability, and right now everything seems to be working despite the cold." He also predicted prices would fall Tuesday for Wednesday flow. "After this first-of-the-week shock, reality should set in as demand drops a little bit each day and temperatures begin rise," he said. "I wouldn't expect a huge shift. But it is supposed to warm up in Chicago from where it's been and that warmth will make its way east. It's still going to be cold, just not brutally cold."

Having sent the coldest weather south of the border, a producer in Calgary reported 35 degree (F) temperatures. "It's actually pretty pleasant up here compared to the Midwest and Northeast. We are going to go back to below normal tomorrow, though. All the pipes are full going East, and even [Gas Transmission Northwest] going West is full as well. I have not heard of any major constraints.

"I think Chicago will stay around the $9 level this week, but when the cold completely moves out in the next few weeks, there's still going to be plenty of gas in storage. We are going to come out at a pretty comfortable level."

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