Wednesday, January 08, 2014
The polar vortex gripping the nation has brought a crazy week for natural gas. On Monday the demand for gas nationwide hit a record 125 billion cubic feet as homeowners and power generators sought to burn as much of it as they could get to keep the cold at bay. 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 — 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.
“On Monday the message was, ‘We need every molecule we can get,’” says one natural gas trader in Houston. 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.
Natural gas utilities, which serve homeowners and small businesses, have the first call on gas supplies in times like this as they are required by regulators to maintain a supply cushion for in order to keep grandma from freezing to death. That meant some power generators in the Northeast got pushed out. 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. Very little oil is burned for electricity anymore because of the high cost. But this week, says Jack Weixel, research director at Bentek, “they were back to burning fuel oil because it was cheaper than gas.” When natgas is selling for $100/mmBTU, anything goes.
For the full report, please visit www.forbes.com.