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    US Spot Gas Tops $600 as Cold Spreads


Demand spiked as polar vortex spread south

by: Dale Lunan

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US Spot Gas Tops $600 as Cold Spreads

Spot gas prices in parts of the US soared as high as US$600/mn Btu over the past weekend, RBN Energy said in a February 15 blog, as the spread of a polar vortex across much of North America pushed natural gas and electricity demand to record highs.

As the vortex, dubbed Winter Storm Uri, spread across large swaths of the Lower-48, temperatures plunged as low as -40 ºC and gas schedulers at utilities and end-use facilities across the Midwest scrambled to find supplies to meet expected demand over the Presidents Day long weekend.

In Oklahoma, RBN Energy’s Sheetal Nasta wrote, gas sold at the Oneok Gas Transmission trading hub went for as much as $600/mn Btu and averaged nearly $370/mn Btu for a four-day package covering the extended weekend period, Friday to Monday.

“That’s the highest price seen for any hub during intraday trading Friday, and also now the all-time high for any hub – by far,” Nasta wrote. “Similar stories played out at other hubs in the Midcontinent – the average for Midcon hubs was nearly $240/mn Btu – as well as many western hubs, where even the lowest trades of the day were in the triple digits.”

Where prices soared, Nasta wrote, was almost as surprising as how high they ballooned. For the most part, triple-digit prices were confined to markets west of the Mississippi, while markets in the Northeast and Gulf Coast were much more modestly impacted.

Normally, the US Northeast is most susceptible to cold-induced price spikes, but prices there averaged just under $8/mn Btu over the weekend. Even trading at the Henry Hub in Louisiana, the benchmark for US natural gas trading, was relatively benign, and averaged “a mere” $6/mn Btu for a four-day package – still double what it was a week earlier.

But elsewhere, Winter Storm Uri packed a vicious punch. Across the 30 cities tracked by RBN Energy, the population-weighted temperature on February 14 averaged 33.5 ºF (0.83 ºC), with the Midwest registering a Sunday average of just 1.6 ºF (about -17 ºC).

“The unprecedented cold led to record demand in electricity and gas markets,” Nasta wrote. Lower-48 consumption from residential and commercial heating, power generation and industrial use, has averaged about 120bn ft3/day since February 11, about 6bn ft3/day higher than the five-year average, and could approach 130bn ft3/day when February 15 consumption is factored in.

The impacts of the vortex were exacerbated by supply shortfalls in many parts of the US – with the exception of the Northeast, which can draw from the vast Marcellus shale gas region, Nasta wrote.

Overall, Lower-48 production averaged just 83.7bn ft3/day as of February 14, down 3bn ft3/day from Friday and more than 7bn ft3/day lower than the previous Friday (February 5), when production topped 91bn ft3/day.

In the Permian basin, well freeze-offs began impacting production on February 11, when supply fell by about 500mn ft3/day. But by February 14, the disruption had escalated to nearly 2.5bn ft3/day – and could even increase as late nominations are calculated.

“As temperatures fell below freezing across much of the contiguous US…and freeze-offs took effect, traders by Friday (February 12) were caught unbearably short and left to scramble, scrape and scrounge for molecules, both to make up for shortages from Thursday and to prepare for a four-day weekend of sub-freezing and sub-zero temperatures in places like the Lower Midcontinent and Texas – parts of the country that had not breathed air that cold in living memory,” Nasta wrote. “But the volumes were fast-disappearing – they simply ran out of gas.”