Did You See Those Prices?

By: Matthew Mattingly & Chris Amstutz

The Arcticgeddon, Snowmageddon, Bomb Cyclone Blizzard, or whatever you want to call it, just brought harsh winter weather to the Eastern Seaboard. This storm boasted 60+ mph blizzard winds and serves as the exclamation point for a wild two weeks of record low temperatures for the region and the eastern 2/3rds of the country. So how did it get to the point that the temperature in parts of the U.S. was colder than the surface of Mars? (Yes, it’s true). A number of factors (previously discussed in the Winter Forecasts (Not So) Set In Stone blog) including snow pack and blocking pressure systems have compounded to bring us this arctic chill.

Winter Storm Grayson is not just causing havoc to the people of the Northeast, but also to natural gas pricing. Gas daily pricing has been strong to start the year, but pricing for January 5th gas flow brought record numbers. Incremental daily pricing for last Friday’s gas flow even exceeding daily pricing during the Polar Vortex of 2014. Gas Daily Daily settlements for January 5, 2018 show the Algonquin pricing point at $79/MMBtu, Transco Zone 6 NNY at 125/MMBtu, and Transco Zone 6 NNY breaking $175/MMBtu. To put that in perspective, Transco Zone NNY averaged $3.22/MMBtu for the first 26 days of December 2017, a mere 3 weeks ago.

The recent high prices in the daily market once again highlights the lack of natural gas pipeline capacity entering the New York and New England market areas. Pipeline capacity in the United States has been discussed numerous times by Choice Energy Services via the Bulls & Bears reports, as it is such a crucial fundamental for local pricing. Although new greenfield and expansion pipeline projects have come online in 2017, and is expected to grow significantly in the coming years, they have not hit the New York and New England region. Pipeline projects have been met with fierce opposition from eco-minded politicians. While at the same time, the region’s demand for natural gas has grown significantly due to a large growth in the power sector.

This region is adjacent to one of the largest natural gas basins in the world but until new or expanded pipeline capacity is constructed, the pricing premiums are likely to occur again. As a result, end-users in the NY/NE area need to ensure they purchase their energy contracts strategically, while making sure they are mindful of incremental language in their natural gas and electricity contracts. Thankfully the clients of Choice Energy Services have peace of mind during this winter season, as their energy contracts were purchased prior to the winter season and incremental language was carefully evaluated to meet the risk tolerance of the clients.