New England natural gas and electricity prices rise due to supply constraints and high demand

The natural gas spot price at Algonquin Citygate, a commercial hub and benchmark for natural gas pricing in New England, averaged $20.55 per million British thermal units (MMBtu) in January 2022 – the highest monthly average price since February 2014 – and topped $28/MMBtu over several days in a pattern of price spikes this winter.

The wholesale price of overnight electricity in New England has also increased; the daily average price exceeded $100 per megawatt-hour (MWh) 25 times in January 2022. Price spikes in New England will likely continue this winter in response to extreme cold events as pipeline supply remains constrained and Liquefied natural gas (LNG) imports remain scarce as the region competes for LNG in a tight global spot market with high prices.

Several factors explain the high natural gas spot prices and electricity prices this winter:

  • Increased load due to weather conditions
  • Constraints on interstate gas pipelines in the region
  • Limited additional LNG supplies

The load due to weather conditions increases. In the week ending January 11, natural gas consumption in New England (for space heating and power generation) reached 4.9 billion cubic feet per day (Bcf/d), according to IHS Markit – highest since January 2021 – contributing to high natural gas and electricity prices. A cold start through January 2022 has pushed New England’s average natural gas demand to more than 4.1 billion cubic feet per day so far this year (January 1-31). Overall demand for natural gas in New England is up 13% so far this winter (November 1 to January 31) compared to the average of the previous five seasons.

Regional pipeline constraints. From January 7 to January 21, 2022, natural gas generation in New England decreased by 14% compared to the period from December 31 to January 6, according to our Hourly monitoring of the electrical network. Gas pipeline constraints have limited the amount of natural gas that can be delivered to power plants, leading to the reactivation of several power plants that burn fuel oil to help meet electricity demand. Oil-fired generation has accounted for up to 20% of New England’s electrical supply for several hourly intervals since Jan. 7. New England hasn’t used substantial amounts of fuel oil to meet electricity loads since January 2018, during a Bomb Cyclone winter storm.

Source: Graphic from the United States Energy Information Administration (EIA), using the Hourly monitoring of the electrical network and data from ISO New England

Limited additional LNG supply. Limited LNG availability has also contributed to higher natural gas prices in New England this winter. New England end users must compete for LNG in a tight global market with currently high spot prices. On peak days, LNG contributes up to 35% of New England’s natural gas supply. In January, the natural gas spot price averaged $21/MMBtu at Algonquin Citygate, $28/MMBtu at the title transfer facility in Europe and $29/MMBtu in Asia. In previous winters, LNG imports moderated the New England spot price and limited price spikes.

Courtesy of Today in energy.

Main contributors: Chris Peterson, Mark Morey, Victoria Zaretskaya

Top image source: Chart created by the US Energy Information Administration, based on data from Natural Gas Intelligence and S&P Capital IQ

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