After a three-year hiatus, winter returned to the U.S. natural gas market this year in the form of a “Bomb Cyclone” and more than a week of frigid temperatures. The cold weather pushed Henry Hub prices above $6/MMBtu and East Coast prices higher than $100/MMBtu on some days. This winter, the pain wasn’t just confined to New England. Prices at Williams’ Transcontinental Gas Pipeline (Transco) Zone 5, which includes the Carolinas, Virginia and Maryland, hit all-time highs on January 5. Exports from Dominion’s Cove Point terminal in Maryland are only just getting started so it’s not liquefied natural gas (LNG) exports from the East Coast that are driving prices higher. Instead, it’s gas’s increasing role in winter power generation that has been putting pressure on East Coast gas pipeline deliverability. Today, we begin a series explaining why prices have been so high on very cold days this winter and why more price spikes may be ahead.
This winter, eastern gas prices have set records at some hubs and spiked near record highs at many others. Prices at Algonquin Citygate and Transco Zone 5 (yellow and blue lines, respectively, in Figure 1 below) ran up to more than $100/MMBtu on January 5, and to $24/MMBtu during the week prior. These price spikes have been driven by an increasing call on gas for power generation across the eastern U.S. On the coldest days, such as we saw when the Bomb Cyclone hit, the demand for gas as a generation and heating fuel exceeds pipeline capacity to deliver it, which begins a cascade of dominoes that results in skyrocketing prices.