January 09, 2014

East Coast US cold drove natural gas prices up 20 times to $100 per thousand cubic feet

In a normal early-January week the draw on natural gas inventories is about 170 billion cubic feet. This week, according to market watcher Bentek, the drawdown is expected to be on the order of 310 bcf (almost double) — the most ever.

The record demand stretched supplies in the Northeast. In the New York region on Monday prices for natural gas reached a record $100 per mmBTU. This is natural gas we’re talking about, not gasoline or oil. A week before spot prices were on the order of $4.25 per mmBTU.

The price shock was felt as far south as east Texas, where spot prices were up to $40.20 per mmBTU, nearly matching the record set back in 2004.

There’s also anecdotal reports of coal-fired plants going offline because their coal slurries froze up. As a result, during the deep freeze, nuclear power made up a bigger portion of the power supply pie, while some generators had to resort to the emergency measure of firing up their boilers with heating oil.

Some green environmentalists like to talk about reductions in nuclear power generation during heatwaves in France. Perhaps hundreds of seniors died in heatwaves in Europe. I am curious if they had the air conditioners installed which could be turned on in case of hot weather. They apparently could not go to the 24 hour Supermarket where there was air conditioning. In this case nuclear power was part of saving people from the cold.



If it gets this cold again, say in late February or early March, it could eat through all the natural gas in storage, potentially causing shortages for millions. “People would die.” Of course traders like to talk up their books. This one is long gas, and thinks we could see $5 per mmBTU this year, up from a current $4.30. (He suggests the average Joe can get long gas with the U.S. Natural Gas exchange-traded fund (NYSE:UNG).

Bentek analyst are not so concerned. Having entered the heating season with 3.7 trillion cubic feet of gas in storage, Weixel expects we’ll exit winter with 1.4 tcf left over. The basis for that confidence: despite record demand, the U.S. is also enjoying near-record natgas supplies. Gas production this week is running about 64 bcf per day. That’s down a touch from the record 66 bcfd from late last year, but up about 20% from a year ago. All thanks to shale gas fracking.



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