Cooler weather in the US Northeast this month is putting the brakes on gas-fired power demand there, leaving more supply available for injection to storage. Recovering from a now-sizable inventory deficit could be critical for regional utilities hoping to cap winter spikes at key hubs in New York and Boston.
In September, the remnants of Hurricane Ida have ushered in sustained cooler weather across the Northeast, dropping population-weighted temperatures to an average 70.8 degrees Fahrenheit this month, down from levels closer to 80 degrees in late August, S&P Global Platts Analytics data shows.
The cooler weather has made regional power burn slide. Month to date, gas demand from Northeast generators has averaged about 7.8 Bcf/d – a decline of more than 3 Bcf/d from the final week of August.
While some of the additional supply is making its way into storage, much of the surplus has been diverted to neighboring markets where spot gas prices have offered attractive spreads for shippers.
Month to date, Northeast gas transmissions to the Midwest are up about 700 MMcf/d compared with August; flows to the Southeast are up 900 MMcf/d over the same period. In September, an estimated 15.5 Bcf/d in Appalachian supply is flowing to neighboring markets – most of it divided almost equally between the Midwest and the Southeast, with a much smaller volume flowing to Eastern Canada.
Month to date, injection demand has also climbed about 600 MMcf/d to an average 3.6 Bcf/d, Platts Analytics data shows. With just over eight weeks remaining for the injection season, though, Northeast utilities will need to increase the pace of injections to reach typical pre-winter inventory levels.
Storage, prices
As of Sept. 8, Northeast storage is now estimated just below 806 Bcf – a nearly 60 Bcf deficit to the prior five-year average and about 250 Bcf below the region’s typical pre-winter inventory level, according to data compiled by Platts Analytics.
Over the next eight weeks or so, injection demand in the Northeast would need to consistently average at least 3.6 Bcf/d to reach last season’s inventory high point around 1.05 Tcf in the second week of November.
Strong cash prices in the Midwest and Southeast, now trading in the mid- to upper $4s/MMBtu, have offered sizable spreads from Appalachia where spot gas has traded well below $4 recently.
Assuming storage ends the injection season below 1 Tcf – roughly sustaining its current deficit – the reduction in supply could fuel price spikes on peak-demand days, particularly in New York and Boston.
Forwards markets already appear to be accounting for that outcome.
Over the past three weeks, calendar-month forwards prices at Transco Zone 6 New York and Boston-area Algonquin city-gates have been up about $1/MMBtu and $2.70/MMBtu, respectively. In New York, the forward market is now bracing for $9 gas in January; in Boston, nearly $17 gas, S&P Global Platts’ most recently published M2MS forwards data shows.
Source: Platts