US Northeast gas, power spot markets spike ahead of sub-freezing temperatures

US Northeast natural gas spot prices jumped to about a five-year high on Dec. 22 as a cold snap brought below-freezing temperatures throughout the region.

Algonquin city-gates jumped to $30/MMBtu Dec. 22, its highest price since January 2018. The cash basis for Algonquin reached a $22.75 premium to Henry Hub, its highest level in about a year after rising $22.20 on the day. Texas Eastern M-3 also reached its highest price in the past four years at $30.50/MMBtu, while Transco, Zone 5 delivered South climbed to about $63/MMBtu, under its previous high of $127/MMBtu from Jan. 4, 2018.

Across the US temperatures, were expected to drop drastically overnight, with below-freezing weather quickly approaching. In New York City, the temperature low was forecast to reach 11 degrees Fahrenheit, down about 35 degrees from the previous day and 21 degrees below the average for Dec. 23. The wind advisory warning showed wind speeds passing 45 mph, bringing the wind chill temperature to negative 17 degrees, according to AccuWeather.

As a result of colder temperatures, heating demand was expected to climb from 13.5 Bcf/d Dec. 22 to about 18 Bcf/d Dec. 23, which would be the largest demand level seen since the end of February, S&P Global Commodity Insights data showed. Total Northeast demand should see its largest day-on-day increase in nine months amid stronger heating demand, climbing about 4.7 Bcf on the day to 31.3 Bcf/d by Dec. 23. Demand should continue its ascent throughout the weekend, peaking at 31.9 Bcf/d, with temperatures averaging 22 degrees below normal at their lowest point over the next five days.

As temperatures fall, production may see potential freeze-offs, limiting supply in the region. So far in December, production has averaged around 35 Bcf/d, down 730 MMcf from the year-ago period. Should a freeze-off occur alongside lower year-on-year production, the draw on storage could strengthen.

US East storage levels have continued to trail year-ago levels by 26%, according to the US Energy Information Administration. Inventories decreased to 789 Bcf, 7 Bcf behind the five-year average after a withdrawal of 33 Bcf for the week ended Dec. 16, the latest EIA report showed. Storage should remain below historical levels with the coming subfreezing temperatures as the region seeks withdrawals to meet demand.

Power pricing reaction

In response to strengthening gas pricing and plummeting temperatures, Northeast spot power climbed on the Intercontinental Exchange on Dec. 22.

ISO New England's Mass Hub on-peak for Dec. 23 delivery more than doubled its prior day's settlement to trade at its highest level since mid-July around $209.75/MWh, 69% higher than year-ago levels. So far in December, the package has averaged roughly $98.50/MWh, which was 38% higher than the same month-to-date period in 2021, according to S&P Global data.

Similarly, in the New York Independent System Operator, day-ahead on-peak locational marginal prices surpassed year-ago levels. Zone G Hudson Valley saw a 55% day-on-day increase to trade around $138.25/MWh, more than double the price in 2021. Likewise, Zone J NYC rose about 57% on the day and 80% on the year to almost $141.50/MWh.

The corresponding month-to-date averages increased 78% on the year to $90.25/MWh and 74% on the year to $91.25/MWh, respectively, S&P Global data showed.