US Northeast spot natural gas prices jump as Henri storm system weakens, temperatures rise

Cash prices for next-day flows of natural gas in the US Northeast saw a double-digit increase in Aug. 23 trading amid a firm demand outlook, as hot weather appears in the forecast and work begins to restore power in New England following Hurricane Henri.

Algonquin city-gates traded 35 cents higher at $4.235/MMBtu, while Iroquois Zone 2 gained 19.50 cents to trade at $4.115/MMBtu, according to preliminary settlement data.

Some regional spot gas prices had dropped on the previous trade day Aug. 20, as the region braced for possible power outages from Hurricane Henri. The storm system, which was upgraded to a Category 1 Hurricane on Aug. 21, made landfall along the Rhode Island coast Aug. 22. As of Aug. 23, Henri had been downgraded to a Tropical Depression, according to the National Hurricane Center.

More than 100,000 residential customers lost power across Rhode Island, Massachusetts, New York, New Jersey and Connecticut over the weekend.

S&P Global Platts Analytics data showed that Northeast gas-fired power demand dropped by around 1 Bcf, or 9%, to 10.27 Bcf on Aug. 21 and remained near that level Aug. 22.

Heavy rainfall from the slow-moving storm system has complicated efforts to restore electricity, however, National Grid had restored power to over 72,700 customers in New England as of 9 pm ET (0100 GMT) Aug. 22, according to an update the utility posted on Twitter.

Heat wave

As electricity is restored, returning gas-fired power generation demand to pre-storm levels, above-average temperatures are forecast to further elevate regional gas demand.

The average temperature in the Northeast was forecast to rise into the low 80s Fahrenheit for Aug. 24-26, according to Platts Analytics and CustomWeather, which would be between 6-8 degrees higher than normal.

The National Weather Service forecast that highs in major metropolitan areas such as New York City and Boston would flirt with 90 degrees F by mid-week.

Northeast gas demand for both res/com and power generation was expected to rise through the first half of the week, accounting for 1.4 Bcf/d of additional gas demand by Aug. 26 from Aug. 22 levels, according to Platts Analytics.

The heat wave forecast is part of a larger regional trend of higher temperatures this August, which has led to sustained power burn demand and more supportive basis spreads.

Algonquin city-gates has averaged a 13-cent discount to cash Henry Hub so far this month, a fraction of the 57-cent discount averaged in July. Similarly, Iroquois Zone 2 has seen its discount narrow to average 3 cents this month from 16 cents last month. Both locations have seen spreads flip to a premium on five or more days this month.

Outlook

Looking ahead, regional spot gas prices will likely see some further upward movement over the next several days, before falling in trading for weekend flows as temperatures ease and power burn drops.

That said, continued above-average temperatures could keep a steady floor on how low cash prices can go.

The NWS’ six- to 10-day and eight- to 14-day outlooks both show a likelihood of above-normal temperatures in the Northeast, which could keep gas demand and spot prices high in the near-term.

As of 1 pm ET (1700 GMT) Algonquin city-gates’ balance of the month contract was trading at $4.315/MMBtu on the Intercontinental Exchange.
Source: Platts