Natural Gas Demand Hits Record As Cold Bomb Targets Northeast
Brutal cold brought record low holiday temps from the midwest through New England. Boston hasn’t seen such a cold spell since 1872. Power prices in New England have exploded to $190 per megawatt-hour today, with a peak last night of $289 per mwh (versus an annual median closer to $50 per mwh). It could get worse. A snow-and-ice bomb is on its way up the eastern seaboard, bringing with it the potential for hurricane-force winds off the coast. Tallahassee, Florida this morning saw its first snow in 28 years. Ice cover on the Great Lakes is expanding rapidly. Cape Cod could get a foot of snow.
To keep America warm, power plants are burning a record amount of natural gas — 143 billion cubic feet per day. (Compare that with 125 bcfd during the 2014 Polar Vortex.) In Boston natural gas for prompt delivery exploded in price to $35 per million British thermal units, making it the priciest gas market in the world.
Boston can’t get enough methane at any price. But with prices like that, a crowded field is working to close the arbitrage. Utility company Eversource imports LNG into Boston harbor to meet winter need, but that requires a specialized port. There’s fewer barriers to entry when it comes to fuel oil — it’s easy to transport, store and burn. But the drawback of generating electricity from oil is that it (usually) costs far more than methane for the same amount of energy, while its carbon intensity is as bad as coal.
Which is why its so troubling that as of Wednesday morning New England was relying on fuel oil for a remarkable 33% of its power supply. This shouldn’t be necessary so close to one of the world’s biggest natural gas fields — the Marcellus Shale of Pennsylvania and West Virginia where drillers and frackers have grown output from just a puff a decade ago to a recent 20 billion cubic feet per day. Add to that a new boost of production from the Haynesville shale of Louisiana, up 40% in a year to 4.9 bcfd. Pricing at the more liquid Henry Hub in Louisiana is up by a third in recent weeks to around $3.50 per mmBtu — just a tenth the price of the spikes recently seen in Boston.
In the past decade northeast demand for natural gas has surged as plentiful supplies of shale gas from the Marcellus shale in Pennsylvania have flooded into the region displacing mothballed coal plants and the closure of nuclear plant Vermont Yankee. The region wants more gas, but supply infrastructure hasn’t kept up, with pipeline projects blocked by NIMBY. Last June, utilities Eversource and National Grid withdrew their plan for a $3 billion pipeline that would bring cheap gas to New England because there wasn’t enough political support for getting ratepayers to foot the bill.
Enough already. Times like this are good for a reminder on what really keeps the heat on. New England’s power breakdown today is 33% oil, 27% nuclear, 24% natural gas, 5% hydro and 4% coal. Of the 7% sourced from renewables, more than 80% comes from burning wood and trash, with just 1% (of that 7%) coming from solar. Solar and batteries get a lot of hype for helping to smooth summer time peaks, but for dealing with a deep freeze, it’s clear the northeast needs something else — more natural gas.