Supply Constraints Plague Winter Gas Power Markets—Again

Gas market regulators and observers have been warning for several years that the rapid shift toward reliance on natural gas was creating a risk of shortages in the event of unplanned demand shocks. A series of mild winters in the 2010s reduced demand for heating, freeing up supplies and pipeline capacity for power generation.

Even last winter’s supply constraints in New England, which led to several episodes of plants being unable to secure fuel to operate, seemed to have little impact elsewhere in the country, even though officials such as Federal Energy Regulatory Commission (FERC) commissioner Phillip Moeller warned that other areas were at risk of similar disruptions.

Those warnings proved prophetic this winter.

Driven by unusually cold weather and a series of brutal winter storms—dubbed the Polar Vortex—January set a parade of records for natural gas demand. According to Bentek Energy, last month saw seven out of the top 10 demand days on record, reaching an all-time high of 78.3 billion cubic feet (Bcf _on Jan. 7. Demand averaged 102 billion cubic feet per day (Bcf/d), nearly 8 Bcf/d higher than the previous high. The January total of 3,162 Bcf was also 241 Bcf higher than any other month on record, according to Bentek data.

Spot prices for natural gas hit records near $100 per million British thermal units (MMBtu) in several areas, while Henry Hub prices topped $5.60/MMBtu the last week of the month, a level not seen since early 2010. Natural gas storage levels fell to 1,923 Bcf on Jan. 31, according to the Energy Information Administration (EIA)—a drop of almost 1,000 Bcf for the month. That figure represents the lowest level since last May, and the lowest for an end-of-January total since 2004. Cumulative net withdrawals for the 2013–2014 season have already set an all-time record, the EIA said on Jan. 17.

Pulling the Plug

As might be expected, the impact on the power generation sector has been intense.

Numerous pipeline companies had to issue operational flow orders restricting delivery, and no interruptible service was available on the worst days of the Polar Vortex. According to estimates by consulting firm ICF International, PJM lost 20% of its capacity on Jan. 7—38 GW. The Midwest Independent System Operator (MISO) was also hit hard, losing 28 GW, also around 20% of its total. The New York Independent System Operator (NYISO) lost around 10%, about 4 GW. ISO-New England (ISO-NE), having boosted its dual-fuel capacity after last winter’s debacle, was successfully able to transition to fuel oil, and lost only about 1.5 GW of capacity, around 5%. Even the Electric Reliability Council of Texas (ERCOT) lost about 5% of its capacity. While not all of this lost capacity was due to gas shortages, the lack of fuel was a major factor.

To put those figures in perspective, PJM had never lost more 9% of its capacity due to weather. Even with the lost capacity, PJM, NYISO, MISO, ISO-NE, and ERCOT all set or neared records for peak demand.

Yet even when the severe weather eased, the impact continued to be felt. The enormous demand for gas sent ripples across the country, and CA-ISO, though largely spared the blast of cold that hit the rest of the nation, still found itself short of gas. On Feb. 6, CAISO was forced to issue a conservation alert because of gas shortages in Southern California.

The chaos in the gas market sent wholesale electricity prices skyrocketing across the country. Day-ahead prices topped $500/MWh on several days. On January 23, 2013, PJM had to seek FERC approval to exceed its electricity price cap of $1,000/MWh in attempt to boost power supplies. Real-time, hourly prices during Jan. 7-8 climbed into the $800/MWh range, with 15-minute periods topping $2,000/MWh.

Overreliance?

January’s events have renewed concerns about a too-rapid shift toward reliance on natural gas. ICF International noted that had planned and projected coal plant retirements in PJM already occurred this winter, the region would likely have suffered rolling blackouts on the worst days.

“Higher-than-bargained-for electricity costs and an unreliable gird are part and parcel of what will happen as coal-fueled power goes offline,” Laura Sheehan, senior vice president of communications for the American Coalition for Clean Coal Electricity told POWER. “This has been predicted for years and what we are experiencing now is likely to become even more prevalent as more coal is forced offline due to unachievable EPA carbon regulations.”

President Obama discussed natural gas briefly in his State of the Union address on Jan. 29, pledging to support new petrochemical plants and natural gas vehicles. There was no mention of the month’s events.

—Thomas W. Overton is a POWER associate editor (@thomas_overton, @POWERmagazine).