A lull and then watch out!   This past winter showed us the impact of scarce natural gas pipeline constraints on power prices. The period January through March 2014 was 15% colder than the same period in 2013 and as a result  delivered natural gas prices (commodity and transportation) were higher by  roughly 30%. Wholesale energy prices  averaged 78% higher!  What is just as interesting is what happened when the winter ended. From April forward New England wholesale prices have been only slightly higher than last year and in May, 9% lower.  Once the pipeline scarcity caused by cold weather ended, the glut of natural gas commodity pushed prices lower.   This peculiar situation will impact New England in two ways, first the high winter prices in 2014 will be reflected in higher forward prices.  In July 2013 a CL&P Rate 30 customer could have signed a 12 month contract for roughly 8.2 cents/KWh, today a twelve month term would cost 11.5 cents/KWh, a 29% increase from one year ago.  For suppliers that had to go to market to buy additional supply on the wholesale market this past winter, you can bet that they will not let that happen again and as a result additional hedges are built into the prices being offered today as security. 

The second impact is the result of the fall off in wholesale power prices that occurs when there is no weather demand. With the exception of July and August, the non-winter months are very likely to remain at or below last year because in these months natural gas transportation is in excess. This pattern of 5 months of higher prices and 7 months of low or lower prices causes generators using non-natural gas fuels to struggle to make money. The short period of time non-natural gas generators have to make money has caused 3,400 MW of power generating plant retirements  (for a quick review on this topic see the Spring 2014 issue).   In the end New England become that much more dependent on natural gas. 

ISO NE Connecticut Zone Average Day Ahead Prices 

Looking Ahead  

Relief for New England will occur when the interstate natural gas pipeline system is expanded. The two major expansions, the Algonquin AIM project and the Tennessee expansion are still being projected to be completed by November 2016 and November 2017 respectively. This past winter Spectra Energy, the owner of the Algonquin pipeline, announced the Atlantic Bridge expansion to Boston and to the Maritime Providences of Canada. The Atlantic Bridge is expected to be completed.by November 2017. The Algonquin AIM project is well on its way and should be operational by November 2016. Whether the Tennessee and the Atlantic Bridge project both get completed or are completed by November 2017 is speculative since both projects have yet to break ground.  Adding an additional question mark to the Tennessee expansion is that eenvironmental and generator opposition has sprung up in Massachusetts.  

Natural Gas Storage:

The natural gas commodity as of mid June was approximately $1.00/MMBtu higher than at this time last year.  The primary cause is the impact of the recent cold winter on the amount of natural gas in storage.  As of the week ending June 27th, the amount of natural gas in storage was 666 Bcf less than last year at this time and 790 Bcf less than the five year average. Recent weeks have shown that production is beginning to eat into the deficit, but to inject enough natural gas to create sufficient reserves for winter supply (roughly 3,200-3,800 Bcf)  will mean injections will have to average between 71 Bcf to 104 Bcf for the remaining 18 weeks of the injection season. A hot summer or an early heating season could eat into the amount of natural gas injected, so injections less than 100 Bcf will be viewed negatively by the market.  

Weather:

For those that are looking to put an agreement into place in the very near term it is worthwhile to keep an eye on the 10 day weather forecast.  When the heat breaks, prices tend to soften as confidence builds for that week's natural gas injection number.