Just downstream from the Appalachian supply basin — where daily spot natural gas prices are among the lowest in the country — cash and forward prices in the Mid-Atlantic and Southeast have rocketed, becoming the highest gas prices in the land, and in some cases are at never-before-seen levels for this time of year. No doubt it’s been a sweltering summer so far, and low storage levels aren’t helping either. But there’s more to the price premiums than that. Limited access to supply and constraints on Williams’ Transco Pipeline — the primary system delivering gas to the region — have created a demand “island” there just as persistent heatwaves boosted cooling demand. Moreover, without additional pipeline capacity, the dynamics unfolding this summer could become a regular feature of the Southeast/Mid-Atlantic markets. In today’s RBN blog, we break down the factors driving regional prices to new heights.
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We’ll start our analysis with what caught our attention in recent weeks: the eye-popping pricing anomalies that emerged in the Mid-Atlantic and Southeast regions starting around mid-June. Daily spot price history from our good friends at NGI shows that the national benchmark Henry Hub (black line in Figure 1) ran up to nearly $10/MMBtu in early June but lost steam in the second half of the month and ended June with a $6 handle. However, Mid-Atlantic and Southeast prices, represented by trading hubs along the Transco corridor, began to diverge from Henry Hub around that time.
Transco Zone 5 cash (brown line in Figure 1), which represents the Carolinas, Virginia and Maryland markets, had been averaging just 17 cents above Henry in the April-May timeframe and 44 cents above Henry Hub in the first 13 days of June. But prices there abruptly jumped to an all-time high for the June-July timeframe at $16.43/MMBtu on June 14, more than $7 above Henry Hub that day. For the rest of June, it averaged nearly $9.60/MMBtu, more than $2.50 above Henry Hub, and in July, Transco Zone 5 cash topped $11/MMBtu, more than $4 above Henry. Transco Zone 3 (Louisiana; green line) and Zone 4 (Mississippi, Alabama and Georgia; sky blue line) June-July average prices, which had traded a few cents back of Henry in previous years, surged to premiums of $1.60-$1.75 to Henry.
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