Northeastern US seasonal variation in natural gas spot prices

The US Energy Information Administration (EIA) has published analysis of Northeastern US natural gas spot price responses to seasonal temperature variation:

Winter

During cold winter months, average temperatures in the Northeast can drop below 20 °F, as occurred in January 2014. On these days, natural gas spot prices reached record levels, rising to more than US$ 75 /million Btu at Algonquin Citygate, US$ 90/million Btu at Tetco-M3, and US$ 120/million Btu at Transco Zone 6-New York.

In 2009, 52% of households in the Northeast US Census Region used natural gas fired heaters as their main home heating equipment. This share was below the percentage of households relying primarily on natural gas-fired equipment for home heating in the Midwest (69%) and West (55%0.

However, Northeastern cities differ from cities in the Midwest and West in that, on days of high demand from residential and commercial consumers that rely on firm capacity from local distribution companies, the amount of capacity available to spot market consumers, largely electric generators, become strained, causing much more significant price rises.

The Northeast is also relatively more reliant on natural gas-fired generation than the West or Midwest. In 2013, gas-fired electricity generation accounted for 33% of net power sector generation in the Northeast, versus 8% in the Midwest and 29% in the West.

In Chicago and Denver, average daily temperatures dropped far lower than in the Northeast last winter, to almost -10 °F. Natural gas spot prices in these cities increased on the coldest days, but they did not climb significantly higher than US$ 30 million Btu. Chicago and Denver generally have sufficient pipeline connectivity to sources in Texas, the Gulf Coast, the Rockies and Canada to meet spot market demand, while also satisfying demand from film-service customers.

Summer

According to the EIA, during warm summer months, the largest increase in natural gas consumption comes from the electric power sector, as the need for cooling in homes and buildings increases demand for power generation.

As temperatures approached 90 °F in New York and New England during July and August last year, natural gas spot prices surpassed US$ 5/million Btu at the Algonquin Citygate hub serving Boston area consumers and at the Transco Zone 6-New York hub. However, price remained below US$ 5/million Btu at the national benchmark Henry Hub in Erath, Louisiana, and at the Tetco-M3-Atlantic hub near Philadelphia.

The Northeastern US is increasingly reliant on natural gas for power generation, according to the EIA. In 2013, natural gas-fired power provided 44% of net electric power sector generation in the New England US Census Division, versus a 26% share for all of the US, according to Electric Power Monthly data.

Spring

During spring days in late April, May and early June, average daily natural gas prices decrease as temperatures rise from winter lows into a mid-range area, generally between 40 – 80 °F. Temperatures and gas prices on these days are very similar to those seen during the fall months of September and October.

Demand for natural gas on the East Coast is generally at its lowest when average daily temperatures are at or near 60 °F. Natural gas spot prices are also lowest on these days, because low residential and commercial demand allows a large amount of pipeline capacity to be available for spot market consumers, but temperatures are cool enough to keep demand for electric generation relatively low.

The constraints resulting from limited pipeline takeaway do not have an affect on the ability to move abundant and relatively inexpensive Marcellus natural gas supply to eastern consumers on these days.

Adapted from a press release by Emma McAleavey.

Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/11082014/northeastern-natural-gas-spot-prices-1112/