Winter natural gas price roller coaster in the US Northeast starts early

For someone who lives in Houston, I spend an inordinate amount of time paying attention to the weather in the Northeast. I’m not alone, either: many of my colleagues write about markets in the Northeast, and many of the traders I know who specialize in the Northeast are actually based in Houston.

For the past two weeks, Superstorm Sandy (a much catchier name than “Hurricane Sandy”) and the first nor’easter of the season, Athena, have wreaked havoc on the Northeast. I cover cash natural gas markets in the Northeast, and my colleague, Lettie Vasquez, focuses on forward markets. Like many others, we’ve already boarded the roller coaster for winter gas price volatility. You can listen to our podcast on the issue here.

New England, in particular, is a crazy ride; on November 1, the price for the Algonquin Gas Transmission city-gates, a major Boston-area price point, was $4.36/MMBtu on InterContinentalExchange, and it had almost doubled to $8.49/MMBtu by yesterday, November 7, as the winter storm moved into the region. Tennessee Gas Pipeline zone 6-200 leg, another New England point, went from $4.47/MMBtu on ICE on November 1 to $8.68/MMBtu yesterday, and other prices also shot up as well, often more than $1 a day.

The forwards markets started their volatility back in the summer, when Algonquin forward basis prices were heaving up and down. As the year draws to a close and demand picks up, price spikes are happening more frequently and at even higher levels. According to Platts’ assessments, the Algonquin December package on November 1 was the Henry Hub benchmark plus $2.98, and yesterday it had jumped to plus $3.46.

Even though the Algonquin market is close to the bountiful Marcellus Shale, only 1.7 Bcf/d of those supplies can get to market, and LNG and Canadian imports traditionally come in to fill that need. There’s some concern LNG will get diverted to higher-priced markets overseas this winter, though.

Today brought another twist in the New England cash price ride, when forecasts called for the winter storm to ease on Friday and Saturday. The result was prices nosediving in morning trading sessions on ICE. Algonquin fell $2.12 to average around $6.37/MMBtu, and Tennessee zone 6-200 leg fell around $2.25 to average around $6.43/MMBtu.

One interesting thing so far is that while New England has already shown whiplash-style price changes, the New York area has been more sluggish. The nor’easter hit New York City too, and temperatures there have been comparable to Boston. But Transcontinental Gas Pipe Line zone 6-New York shifted from $3.71/MMBtu on November 1 to just $4.04/MMBtu yesterday. Today it was back down to the low $3.70s/MMBtu. Could it be that lingering power outages from Sandy are squashing demand and prices? Could it be that New York’s historical winter price volatility has softened?

Technically, winter starts on December 21, the winter solstice. But if this fall is any indication, it will be a wild ride for gas prices.

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