Average spot natural gas prices in New England have surged to $3 per million British thermal units (MMBtu) higher than natural gas prices at the Henry Hub since November, driven up by supply constraints from natural gas pipelines that haven’t kept up with demand, high international prices, and declining production in eastern Canada, the U.S. Energy Information Administration (EIA) says in a report released last week.
"Full pipelines from the west and south limit further deliveries from most of North America, while high international prices and declining production in eastern Canada pose challenges in making up the difference from the north and east, except at higher prices." These market conditions have prompted natural gas and electric power prices this winter to be "volatile" at times, the EIA says in its report, though it notes that spot gas prices have still been less expensive than those in northwestern Europe.
Key natural gas pipelines from supply areas to New England are full or nearly full, the report says.
The Algonquin Gas Transmission (Algonquin) system and the Tennessee Gas Pipeline (TGP) transport most of the natural gas into the New England market, but recently, both of these systems have been constrained.
Meanwhile, contributions of eastern Canadian natural gas production to New England’s gas supply have been falling. There are two principal sources of natural gas in eastern Canada that can be delivered into the U.S. at the Baileyville interconnect: production from the Sable Offshore Energy Project and send-out from the Canaport LNG terminal in St. John, New Brunswick. Both sources of potential supply have been limited so far this winter, the report points out.
Natural gas demand in the region has surged since last winter (one of the warmest in 60 years), and natural gas use for power is also rising, the EIA says. Average natural gas use for power generation in New England was up about 3% from January to October in 2012, compared to the same period in 2011. Natural gas accounted for 51% of total generation in ISO New England in 2011.
"Because generators using natural gas often set the market-clearing price for electric power, wholesale electric power prices often trend together with natural gas prices. In these circumstances, natural gas is referred to as being the “fuel on the margin.” As a result, higher spot natural gas prices may contribute to higher electric power prices," it says.
Sources: POWERnews, EIA