The U.S. is expected to have sufficient power generation headed into what is projected to be a relatively mild winter, but natural gas supplies remain a concern in the fuel-constrained Northeast, according to the Federal Energy Regulatory Commission's annual winter reliability assessment.

Increased gas exports, combined with lower-than-average storage inventories, are expected to put upward pressure on gas prices for the winter, the report said, anticipating that high prices for liquefied natural gas could also lead to scarce gas supplies during peak demand periods in some areas.

Following the Northern Hemisphere's second-hottest summer on record, the U.S. National Oceanic and Atmospheric Administration forecast higher-than-average temperatures for most regions of the U.S. this winter outside of the Pacific Northwest and western North Central region.

But the ISO New England and Midcontinent ISO regions, as well as Texas and parts of the Southeast, could struggle with power capacity shortfalls during extreme weather scenarios similar to February 2021's severe winter storm, FERC staff said during a presentation at the agency's Oct. 20 monthly open meeting.

The mid-February 2021 severe cold event knocked out power for millions of customers in the Electric Reliability Council Of Texas Inc. region and resulted in more than 200 deaths.

"It is good news that in each region of the country, we have a sufficient amount of generating capacity to meet effective demand under normal conditions," FERC Chairman Richard Glick said. "But we also know, based on the last several years, that extreme weather can occur quite frequently and all over the place in different forms."

Like previous reports, FERC's reliability assessment found that New England's power grid is particularly vulnerable to severe cold due to the region's limited natural gas pipeline capacity and high levels of gas-fired power generation. New England residents also rely heavily on natural gas supplies for home heating needs in the winter.

FERC held a forum in Burlington, Vt., in September where industry experts proposed a range of solutions, including market reforms that further encourage generation resources to store fuel on-site ahead of extreme weather forecasts.

During the Oct. 20 open meeting, Glick called the New England region's reliance on LNG imports "unsustainable."

"It's just crazy to be so reliant on LNG imports," Glick said, citing a spike in natural gas prices.

Natural gas futures prices near Boston for winter 2022-2023 were $23.57/MMBtu, a 38% increase from last winter, FERC staff noted.

Outside of New England, gas pipeline constraints may occur in Southern California and the Desert Southwest, according to the report, which also cited an outage reducing capacity on El Paso Natural Gas Co. LLC's system. California gas supplies also could be affected as TC Energy Corp.'s Baja XPress Project enables new exports to Mexico, the report said.

Glick also repeated calls for more interconnection ties between the siloed Texas power grid, which is largely exempt from FERC regulation, and the rest of the U.S. transmission system. ERCOT was forced to implement massive power outages in the February 2021 winter storm, but the neighboring MISO and Southwest Power Pool regions avoided widespread blackouts by importing power from the PJM Interconnection LLC, Glick noted.

"We need to spend a lot more time talking with Texas and others about building extra transfer capacity so that when things are cold, when Texas really needs power, they can wheel power in from other regions," Glick told reporters after the open meeting.

LNG export demand expected to remain high

Turning to the natural gas markets, FERC economist Kelly Shannon noted that natural gas futures prices for this winter exceed the final prices of last winter at nearly every major U.S. trading hub.

Global market dynamics will likely affect U.S. gas markets and prices, while domestic consumption is expected to see relatively little growth, FERC staff said.

"U.S. LNG export demand is forecasted to remain high this winter, due to strong forecasted profit for exporting to both European and Asian markets," Shannon said. Net exports are forecast to grow 24% above last winter's levels, driving most of the rise in gas demand along with a 3.5% rise in residential and commercial use.

Russia's invasion of Ukraine has triggered a surge in demand for U.S. LNG supplies as European nations seek alternative fuel sources this winter.

"High global LNG prices are likely to continue to incent U.S. LNG exports, even in a very cold winter scenario in which spot prices climb well above recent averages," Shannon said.

Glick stressed the importance of monitoring high natural gas prices, which are also placing upward pressure on electricity prices, but the chairman also noted that FERC cannot control gas prices.

"We do have authority over market manipulation, and we need to make sure that people don't take advantage of the situation," Glick said, adding that he did not contest the "geo-strategic significance" of gas exports.

The focus on gas prices sparked a brief debate among FERC members.

Commissioner James Danly worried that FERC had failed to address some systemic problems contributing to higher prices by slowing reviews and decisions on natural gas pipeline infrastructure.

Uncertainties about when FERC will provide a decision on the merits of a project means developers "can't give a timeline to anyone, not their bankers, to their potential counterparties, not to their shippers," Danly said.

Commissioner Mark Christie said one of the drivers of gas demand, which ultimately affects prices, is the "premature retirement" of coal-fired generation.

In comments to reporters, Glick pushed back on both of those explanations for rising prices, saying the real reason is simple supply and demand.

"Demand in particular is going up at a very great rate," Glick said, pointing to exports as the source of upward pressure.

S&P Global Commodity Insights reporter Maya Weber produces content for distribution on Platts Dimensions Pro. S&P Global Commodity Insights is owned by S&P Global Inc.

S&P Global Commodity Insights produces content for distribution on S&P Capital IQ Pro.