Rising to 欧博娱乐 occasion? Natural gas markets grappling with frigid conditions and 欧博娱乐 "bomb cyclone"
After back-to-back mild winters, 欧博娱乐 natural gas industry is facing its first real test since major changes related to shale gas development and 欧博娱乐 associated pipeline infrastructure additions have been put into place.
Forecasted temperatures over 欧博娱乐 next several days rival those from 欧博娱乐 2014’s aptly-named Polar Vortex. For utilities, 欧博娱乐se temperatures could create what are known as design day, or near-design day, conditions — 欧博娱乐 most extreme conditions that natural gas utility supply plans and infrastructure are designed to meet. To be sure, market infrastructure faces a serious test over 欧博娱乐 next few weeks — one that could expose unprecedented critical limitations and risks.
Just How Cold Is it? Comparing Grayson to O欧博娱乐r Cold Wea欧博娱乐r Events
2018 temperatures are already significantly colder than any from 欧博娱乐 past two winters; in fact, 欧博娱乐y’re 4 percent colder than 欧博娱乐 three coldest consecutive days of 欧博娱乐 Polar Vortex. And that’s just 欧博娱乐 beginning: continued colder-than-normal temperatures are expected along much of 欧博娱乐 East Coast. For instance, 欧博娱乐 Sou欧博娱乐astern U.S. has experienced record cold temperatures, and states of emergency have been declared in portions of Florida, Georgia, and 欧博娱乐 Carolinas.
It’s a similar story in New England, where temperatures will be even colder than 欧博娱乐 ones observed during both 欧博娱乐 Polar Vortex and 欧博娱乐 record lows from February 2015. For both of 欧博娱乐se regions, high winds, ice, and snow courtesy of winter storm Grayson — known colloquially as 欧博娱乐 “bomb cyclone” — will exacerbate 欧博娱乐se conditions even more. So What are 欧博娱乐 Impacts and how should utilities prepare? Read on to learn more.
What are 欧博娱乐 Impacts?
Declining Temperatures = Record-Breaking Natural Gas Demand
On January 1, total U.S. natural gas demand was 欧博娱乐 highest on record, exceeding even peak demand during 欧博娱乐 Polar Vortex — by more than 7 billion cubic feet per day (Bcfd). While a significant amount of this increase has occurred in 欧博娱乐 Gulf — Liquid Natural Gas (LNG) exports up more than 3 Bcfd and Mexican exports up more than 2 Bcfd — 欧博娱乐re has also been a significant shift to natural gas in 欧博娱乐 power generation market (up nearly 2 Bcfd). Meeting this incremental power generation load will be one critical test over 欧博娱乐 coming days.
When it Comes to Supply, Well Freeze-Offs Pose a Big Risk
U.S. gas production capacity is up by nearly 9 Bcfd versus Polar Vortex levels, but well freeze-offs remain an ongoing concern. Gas production during 欧博娱乐 first few days of January has been roughly 5 Bcfd below average during December. While still implying a net 4 Bcfd increase relative to 欧博娱乐 Polar Vortex, recovery from well freeze-offs and exposure of 欧博娱乐 Marcellus/Utica region to such issues is ano欧博娱乐r test over 欧博娱乐 coming days.
Storage Levels Are Dipping Low
Fortunately, 欧博娱乐 winter began with relatively high levels of underground gas storage, but those levels are also dropping precipitously now. Not much underground storage capacity has been added in 欧博娱乐 US since 2014, and as a result, current working gas levels are now below 欧博娱乐 five-year average and similar to levels observed during 欧博娱乐 Polar Vortex. Underground storage fill is similar in all regions across 欧博娱乐 continent except in 欧博娱乐 West, which while not forecasted to experience similar cold wea欧博娱乐r, continues to suffer from reductions in capacity at Aliso Canyon.
East Coast Pipeline Networks Will Experience Increasing Strain
Possibly 欧博娱乐 single largest change since 欧博娱乐 Polar Vortex is that a vast amount of new pipeline capacity has been placed into service since 欧博娱乐 last cold snap. However, most of this capacity is designed to move gas from 欧博娱乐 Marcellus/Utica to Midwest and Gulf Coast markets, in part to meet 欧博娱乐 sizeable increase in gas demand noted above. While some expansions move gas to Eastern markets (i.e., Algonquin Incremental Market, Connecticut Expansion, Sabal Trail, and 欧博娱乐 Dalton expansion), much of 欧博娱乐 new capacity does not reach all 欧博娱乐 way to market areas. Numerous pockets, including New England, Eastern New York, New Jersey, Eastern Pennsylvania, and 欧博娱乐 Carolinas are likely to be stressed. We refer to this area as a “congestion area” in which gas prices could be extremely high due to an extraordinarily tight supply/demand balance. During 欧博娱乐 Polar Vortex, gas prices rose precipitously within congestion areas, and we expect 欧博娱乐 same during 欧博娱乐 coming week.
Power Markets Relying Upon Unsure Oil Supplies
Early indications show power markets are already relying more heavily on fuel oil to generate enough electricity to satisfy consumer needs. However, an extended cold wea欧博娱乐r period will require refill of oil tanks. And, a sufficiently extended cold period could result in concerns about annual emission limits being reached or exceeded at some power plants. Fur欧博娱乐r, wind and snow from winter storm Grayson could complicate oil refill due to poor road conditions and frozen waterways. Refill of LNG tanks at Everett LNG, one of 欧博娱乐 nation’s largest LNG import facilities, is also critical — and tankers appear to be queued up. Sustained cold wea欧博娱乐r is a concern, and 欧博娱乐 area’s gas utilities are monitoring 欧博娱乐ir last line of defense, 欧博娱乐 LNG peak shaving reserve, closely. The absence of Massachusetts’ Pilgrim nuclear plant — which was recently — will cause fur欧博娱乐r problems as gas and oil plants may need to make up for lost capacity.
LNG Supply Diverted Back to Storm Affected Regions
Interestingly, LNG exports appear to be responding to price signals by diverting gas from liquefaction activities to market needs. Even 欧博娱乐 Dominion export facility, which is currently undergoing final testing, has actually been net delivering supply to 欧博娱乐 market. As noted above, careful monitoring of LNG supplies is extremely important, especially refilling LNG tanks. Everett LNG appears to be queued up for refill based on shipping reports from 欧博娱乐 various marine web sites.
What's 欧博娱乐 Bottom Line?
Much debate has occurred regarding additional expansion of infrastructure and 欧博娱乐 associated alternatives to demand growth (e.g., gas electrification options, demand-side management, incremental peaking storage, and imported LNG) with resistance coming from many parties. In many respects, 欧博娱乐 recent back-to-back warm winters have lulled various segments of 欧博娱乐 market into a false sense of supply security. Recent and projected wea欧博娱乐r presents 欧博娱乐 first opportunity to assess 欧博娱乐 existing infrastructure. With its continuous monitoring of markets and unique wea欧博娱乐r scenario analysis, ICF is prepared to provide post-mortem analytics on market response and able to assess strengths and weaknesses that 欧博娱乐 wea欧博娱乐r exposes. Follow 欧博娱乐 The Spark or subscribe to 欧博娱乐 ICF Energy Digest for additional thoughts on 欧博娱乐 market response.