Friday, May 3, 2013

Northeast Gas Poised to Surge on Pipeline Limits; Potential Rolling Blackouts in Boston

Natural gas prices in the U.S. Northeast are poised to reach five-year seasonal highs this summer because increasing demand from power plants may be too much for pipelines to handle.

Regional costs may average $5 to $5.50 per million British thermal units, with the potential to jump to $7 to $8, Chris Kostas, senior power and gas analyst for Energy Security Analysis Inc., a market research and advisory company in Andover, Massachusetts, said in a May 1 interview with Bloomberg News. Average prices for summer delivery at Algonquin City Gates, which includes Boston, were less than $5 from 2009 to 2012.

Bloomberg continues:
Kinder Morgan Energy Partners LP (KMP), Spectra Energy Corp. (SE) and Williams Cos., which own the region’s main interstate pipelines, say their systems are running at or near capacity. New England electricity customers were on the verge of rolling blackouts last June and again in February amid equipment failures and limited gas supply during periods of high demand, according to Philip Moeller, a member of the Federal Energy Regulatory Commission.
“Boston is in the hot seat with their lack of offtake or access to other sources,” Stephen Schork, president of Schork Group Inc., a consulting group in Villanova, Pennsylvania, said in a phone interview yesterday. “We can certainly be paying the highest prices since the 2008 commodity bubble.”
Futures declined 0.1 cent to $4.024 per million British thermal units at 9:32 a.m. on the New York Mercantile Exchange. Prices yesterday fell 7 percent in the biggest one-day percentage decline in nine months.[...]The premium to the benchmark for gas at Transco Zone 6, with deliveries to New York City, also reached a nine-year high in January.
“Until we get infrastructure built, we will continue to have price spikes,” saidKyle Cooper, director of research with IAF Advisors in Houston. “On hot summer days in Boston you could have spot gas going to $8 or $9.”
The pipeline bottlenecks are being driven by the Northeast’s increasing reliance on gas to produce electricity amid record U.S. supplies and the shutdown of older units fueled by coal because of environmental regulations. The shift toward gas accelerated last year, when New York futures dropped to a decade low of $1.902 per million Btu in April.[...]ISO New England Inc., which manages the six-state grid from Connecticut to Maine, expects there to be sufficient supplies in the region to meet projected peak demand of 26,690 megawatts when temperatures reach 90 degrees Fahrenheit (32 Celsius), according to its summer outlook released April 29.
Unplanned generation outages, including those from fuel limitations during seasonal pipeline maintenance, or extreme heat “could create operational challenges this summer,” the New England grid operator said April 29.


  1. This doesn't make much sense to me. Last June delivery of natural gas is roughly half of that of the winter months. Bottlenecks because of maintenance perhaps? Cold winters are much more important for natural gas consumption than hot summers.

    From the article: Gas-fired plants will produce 535,000 megawatt-hours per day in 2013, accounting for 35.6 percent of total electric output in the region, compared with 37.1 percent last year.

    Me thinks Energy Security Analysis Inc is long natural gas. I on the other hand am short.

  2. Bloomberg has it wrong again. The rolling blackouts this weekend were caused by mint julips and ice cold margaritas.

    Happy Derby Day and Cinco de Mayo!!!