Spot natural gas prices across the northeastern US on Monday surged to the highest levels in months ahead of the first widespread shot of cold weather this season.
The Columbia Gas, Appalachia, index, a key indicator for the price of gas from the Marcellus shale in Pennsylvania and the surrounding states, on Monday more than doubled to $2.37/mmBtu, the highest since 2 March. Dailies at the Transco zone 6 New York index also more than doubled to $2.66/mmBtu, the highest since 13 March. The Algonquin Citygates index, a key indicator of New England gas prices, rose to $3.06/mmBtu on the same day, the highest since 27 July.
Aside from increased heating demand in the northeastern demand centers themselves, higher demand in the surrounding regions can amplify northeast gas price gains by intensifying competition for the same molecules of gas. Cold weather in Chicago can lead to higher prices in New York City, for instance, if consumers in both regions simultaneously demand more gas from the mammoth Marcellus shale in Pennsylvania and the surrounding states, which straddles those two demand centers.
Below-average temperatures were expected to cover the eastern half of the US, except much of New England, through 4 November, according to the private forecaster Commodity Weather Group. The furthest-below-normal temperatures were expected in the US Gulf coast, the traditional gas production region through which many pipelines span and stretch up through Appalachia and the mid-Atlantic, ending in New England.
The cold weather is not expected to last for long. Strong expectations for a return to above-average temperatures were responsible for the drop in the December settlement price for the US gas benchmark on Monday, the same day northeast spot prices surged, according to analysts with Gelber & Associates. And the National Weather Service has forecast above-average temperatures in the peak winter months of December, January and February, which would mark the second warm winter in a row.
Lower storage, steeper price spikes
Eastern US gas prices may be more prone to price spikes now that regional storage levels have dropped closer to the five-year average than they have been at any point this year.
Eastern US gas inventories in the most recent report by the US Energy Information Administration were up by 4.1pc from the five-year average. This compares with regional stockpiles being 36pc above the five-year average six months earlier.
Lower stockpiles relative to normal can boost prices by provoking fears of demand spikes or supply shortfalls.
Appalachia gas producer EQT, the largest US gas producer by volume, in an earnings call last week attributed low Appalachia gas prices in the third quarter to high regional storage levels. But strong gas-fired power generation, increased LNG exports and a slowdown in production would boost prices in 2024, EQT executives predicted.
The winter heating season begins on 1 November.