A few thoughts on winter and US natural gas

No one puts it better than Game of Thrones: “Winter is coming.”

Granted the market is only now just in the throes of hurricane season, but given the volatility already present in natural gas financial basis markets, I offer up a few thoughts on winter.

1. Farmer’s Almanac ‘Storm Bowl’

The august publication’s forecast of a Snowmageddon notwithstanding, early indications are for an average–read: cold–winter.

That has always meant price spikes in the daily gas markets, but could this year be the one in which the New York market sits the insanity out?

Reason: The 800,000 Mcf/d new pipelines from Spectra Energy that will directly connect Marcellus Shale supplies and transport them right into downtown Manhattan.

Already New York’s forward basis markets for prompt winter are 80 cents cheaper than the last year’s package. Next winter, they’re about 20 cents below even that.

Certainly, the market expects lower prices. The question is: will that expectation prove to be true?

We would sound a cautionary note: Don’t count out the fear factor that has sent New York prices skyrocketing even when demand is ‘meh.’

2. New England: So close and yet so far

Algonquin Gas Transmission’s city-gates–effectively, greater Boston–saw the 2nd, 4th and 5th highest prices in Platts history this past winter. It wouldn’t surprise us if, we got another prolonged shot of cold, we’d chart another set of highs this winter.

Geographically speaking, the Marcellus Shale is some 300 miles away from Boston. From an infrastructure standpoint, the metropolitan area might as well be on the dark side of the moon.

The unwillingness on the part of power generators to commit to firm transportation on gas pipelines, the swift move toward immense dependence on gas-fired generation and the lack of capacity upgrades or additions to pipelines heading into the region will keep New England markets tight…and volatile.

3. West side is the best side?

Western markets–usually jumping during the summer cooling season–could attract some notice as well.

Western Canadian and Rockies storage is about to burst out of its seams, standing well above the five-year average. As a result, Western Canadian spot gas prices are at near historic lows. LNG exports can’t come quick enough for these folks.

In the Southwest, gas is crossing the border into Mexico quicker that you could say “hot tamale.” This comes just as California continues to adjust without the San Onofre nuclear plant, and more renewables are expected to come online by year’s end in the Golden State, as well as Arizona and New Mexico. Already, the latter two states are in a daily bidding war to keep supplies north of the border and Mexican exports hit new highs on a near-daily basis. Tight markets, again.

All of the above are sure to keep your friendly daily gas team quite busy in the months to come.

No one puts it better than Game of Thrones: “Winter is coming.”

The big question is: Is the market ready?

Platts