Households in the U.S. Northeast will pay higher natural gas prices this winter even as milder weather reduces demand, as transportation bottlenecks limit supply.
New England gas prices “are significantly higher than last year at this time,” reflecting concerns that pipelines can’t ship enough fuel and power production will be reduced after Entergy’s Vermont Yankee nuclear reactor shuts by the end of the year, the Energy Information Administration said yesterday in its Short-Term Energy Outlook. Northeast heating oil supplies are at a 14-year seasonal low.
The construction of gas pipelines has lagged behind the surge in Appalachian shale production. Congestion on railroads hauling coal to Eastern power plants is prompting generators to burn more gas instead. Heating costs surged early this year when waves of polar air spurred record demand for natural gas while depleting stockpiles of heating oil and propane.
“Some of those Northeast prices for the peak winter period, January and February, are incredible and still reeling from last year’s winter,” John Kilduff, partner at hedge fund Again Capital LLC in New York, said in a telephone interview yesterday. “The recent experience is too fresh in people’s mind to bet that this is going to be a lower price environment or that it won’t happen again.”
The EIA said households that rely on heating oil will spend 15 percent less from October through March than last winter, compared with about 5 percent less for natural gas, according to the report. Electricity costs will sink by 2 percent.
The projections are based on a record rebound in gas stockpiles, a drop in oil prices and a National Oceanic and Atmospheric Administration forecast that the region east of the Rocky Mountains will be milder than last winter, reducing demand. The season will be 11 percent warmer in the Northeast and 16 percent higher in the Midwest.
About half of U.S. households rely on natural gas for heating and 39 percent for electricity, EIA data show. Heating oil and propane each have 5 percent share nationwide.
Homes using natural gas will see costs slip 4.6 percent to $649 after rising the previous winter to three-year high of $680, the EIA said. The decline will be driven by a 9.8 percent drop in consumption while prices will be 5.8 percent higher.
Northeast gas-fired power plants have to compete with households and industrial customers for a limited amount of pipeline capacity. Gas accounted for 45 percent of New England’s electricity generation last year versus 30 percent in 2001.
The possibility that Northeast pipelines will be congested again this winter “is something that we are watching pretty closely,” EIA Administrator Adam Sieminski said at a conference co-hosted by the federal agency in Washington yesterday. The lines feeding New England “have been close to their capacity” and it may take a couple years to add capacity, he said.
Natural gas futures for January delivery rose 7 cents yesterday to $4.134 per million British thermal units on the New York Mercantile Exchange. In the Northeast, January gas for Algonquin City Gates, including Boston, was $20.294 at 2:43 p.m. yesterday and Transco Zone 6 for New York City was at $12.738, according to the Bloomberg Fair Value prices.
Gas stockpiles rebounded at a record pace after dropping to an 11-year low of 822 billion cubic feet in March. The EIA expects inventories to reach 3.532 trillion cubic feet by the end of this month, the lowest for the time of year since 2008.
Northeast distillate fuel supplies totaled 29.3 million barrels on Sept. 26, the lowest for the time of year since 2000. The EIA expects this supply to meet heating oil needs ’’unless severe weather in the region coincides with severe weather in Europe.’’ The fuel will average $3.63 a gallon, down from $3.88 last winter, while demand slips 9.6 percent, the EIA said.
“Certain locations in the Northeast are vulnerable to significant price spikes if temperatures get cold for anything more than a day or two,” Kyle Cooper, director of research with IAF Advisors and Cypress Energy Capital Management in Houston, said by phone yesterday. “Mother Nature has really thrown us some extremes the last few seasons.”
© Copyright 2021 Bloomberg News. All rights reserved.