Monday, October 23, 2017

Gas, LMPs Rebound in NY, New England in March

By Michael Kuser

A spike in natural gas costs pushed LMPs up in both NYISO and ISO-NE in March, though analysts say the rise may be short-lived.

NYISO on Wednesday reported locational-based marginal prices for March averaged $34.97/MWh, up from $30.95/MWh in February 2017 and a 69% jump from the $20.66/MWh in March 2016. Year-to-date costs averaged $37.81/MWh through March, up 23% from $30.68/MWh a year earlier.

| NYISO

In his April 12 Market Operations Report to the Business Issues Committee, Rana Mukerji, NYISO senior vice president for market structures, said natural gas prices in March were up 169% year-on-year, with prices at Transco Z6 NY averaging $3.49/MMBtu for March, up from $2.83/MMBtu in February. Mukerji said five days of cold weather boosted prices for the month.

ISO-NE said its average LMPs more than doubled in March from a year earlier as average natural gas prices rose 142%.

| NEPOOL

The RTO said the energy market totaled $382 million in March, up 74% from March 2016, ISO-NE Chief Operating Officer Vamsi Chadalavada told the New England Power Pool Participants Committee on April 7. Cold weather and higher gas prices March 11-14 caused day-ahead LMPs to jump to nearly $100/MWh during the period, with real-time prices spiking as high as $150/MWh as a storm hit the region with near-blizzard conditions March 14.

Blip or Trend?

Are the higher natural gas prices just a blip, or do they portend higher generator costs going forward? Jordan Grimes, director of power and gas with Morningstar, said that “market sentiment is relatively bearish on Henry Hub gas prices, but there are reasons to be bullish on Northeast prices, with the region facing coal retirement and capacity issues.”

The Iroquois pipeline delivers natural gas to western Connecticut from the Canada-New York border southeast of Ottowa, while the Algonquin pipeline carries Marcellus shale gas from Pennsylvania into Connecticut and Massachusetts. “Right now the market is rallying on that, and bullish on Marcellus translates into bullish downstream of Marcellus,” Grimes said.

About 1.0 Bcfd of new FERC jurisdictional pipeline capacity went into service last year in the Northeast, including the Transco Rock Springs expansion (192 MMcfd), the First ECA Midstream project (152 MMcfd) and the Algonquin Incremental Market Project (342 MMcfd), which began operation in the fall.

FERC State of the Markets Report

The March price spikes came following a year that brought record-low natural gas prices and near-record-low power prices, FERC reported in its 2016 State of the Markets report, released Thursday.

| FERC based on EIA data

“Although natural gas production fell for the first time since 2005, flat demand due to above average winter temperatures at the start of the year and high natural gas storage inventories contributed to the low prices,” FERC said. “The low natural gas prices further incentivized gas-fired generation in 2016, and for the first time in history, natural gas’ share of total electricity generation output overtook coal’s on an annual basis.”

Henry Hub prices averaged $2.48/MMBtu, the lowest level in 20 years, FERC reported.

“Above average temperatures in the 2015-2016 winter limited natural gas demand during the first three months of the year, leading to robust storage inventories at the start of the 2016 injection season in April, and reduced demand for storage injections through the summer. Prices fell to record lows in the first half of 2016, before climbing thorough the second half of the year driven by steady domestic demand, rising exports and a drop in production.”

Although the highest in the country, gas prices in Boston were down one-third from 2015. New York City prices showed the largest decrease from 2015, dropping 42%.

U.S. gas production fell 2.5% to 72.3 Bcfd, the first annual drop since the burst in shale production began in 2005.

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