Capstone Energy Services


Winter Natural Gas Price Volatility – Anomaly or Signal?

February 20th, 2014

OMAHA (Capstone Energy Services) – This has been a winter to remember and February 5 was a day to remember. In the midst of one of the coldest winters in the last 20 years, natural gas and pipeline capacity were suddenly in short supply almost everywhere. Residential and commercial heating demand climbed 17 Bcf/day or 31% higher than normal. As a result, daily prices skyrocketed throughout the U.S. as utilities scrambled to find incremental supplies to stabilize the distribution systems and marketers/end-users scrambled to find incremental supplies to comply with critical balancing restrictions imposed by utilities and pipelines. The Federal Energy Regulatory Commission (FERC) will have its work cut out to determine what exactly happened and if any illegal activities occurred that contributed to the excessive prices. Questions arise as to why costs were more expensive delivering into a pipeline out of the same pipeline or why the gap between New Jersey and New York. Some examples:

• Transco Z6 non-NY (i.e. New Jersey) $9.71 Transco Z6 NY (City) $20.99
• Panhandle receipt $32.86 and deliveries Detroit Citygate $19.83
• Texas Gas Z1 receipts $7.84 and deliveries Lebanon $21.31
• El Paso Receipts Permian $24.34 Deliveries PG&E (San Francisco) $23.15
• El Paso Receipts Permian $24.34 Deliveries SoCal (Los Angeles) $11.66
• Rockies Express Receipts Cheyenne $35.03 Deliveries Clarington OH $26.71

While there may be good reasons for these disparities, FERC will need to take a close look to verify that these record prices were due to market factors and not through manipulation of capacity and/or supplies. However, the larger question FERC will need to address is whether or not the gas market itself and the supporting delivery infrastructure is ineffective in meeting significant peak day requirements. Stated differently: Is the U.S. gas market capable of efficiently meeting future peak day requirements, particularly as the industry is restructured both from a supply perspective (shale gas production) and a demand perspective (replacing coal with natural gas electric generation, new load growth for large industrials, vehicle use and conversions to natural gas from fuel oil for commercial and residential consumers, and natural gas exports).

Clearly significant shortfalls occurred this month, the most obvious being a shortfall of capacity into the demand centers of the Northeast and New England. Analysts believed that new capacity into the New York City metro area last year would eliminate or significantly reduce the volatility there. How wrong they were! The consensus has been that there is so much excess capacity from the Gulf Cost moving north that many pipelines have filed applications with FERC to reverse the flow and move gas from North to South and from East to West. Will the production be there and available? Is there sufficient storage capability in the upper Midwest and Northeast to meet peak day requirements with reduced deliveries from the South or the West? Is there sufficient production to refill storage in the summer and also meet hot summer generation demands?

This winter has put the spotlight on many questions regarding supply and delivery sufficiency in the natural gas industry. Hopefully, FERC will take a very close look at the market stresses experienced this winter as it considers future actions. Political and market forces are pushing hard for more electric generation conversions from coal to natural gas, for natural gas to replace petroleum products for heating and transportation and for extensive natural gas export capability with the related north to south delivery infrastructure requirements. With all of the changed in progress, it is beginning to appear likely that the supply and delivery infrastructure will lag behind and the experiences of this winter may not be an anomaly but a sign of things to come during periods of peak demand.


By Ed Freeman

Slide1Slide5  Slide2 Slide3 Slide4

Energy Facts

Energy Facts

Natural gas can be used as a raw material in a variety of products, including paint, fertilizer, plastics and medicines.

Natural gas produces fewer emissions than other fossil fuels, with less nitrogen, sulfur, carbon and fine particulates.

Texas produces the largest amount of natural gas in the USA.

The biggest consumer of coal in the US is the electric power sector.

There are 17,658 electric utility generators in the USA.

Energy Delivery Chains

Energy Delivery Chains

Find out more about how your energy is produced and delivered to your business.

Learn More

Energy & the Environment

Energy & the Environment

How we assist clients in responding to national environmental concerns.

  • Initiate and manage a "Green" energy procurement program
  • Evaluate national legislative and regulatory initiatives
  • Research state and local energy efficiency programs and incentives
  • Track energy use and related emissions estimate