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New England Experiences Energy Price Shock This Week

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As expected, we are seeing tremendous volatility of natural gas and electricity prices in New England for this winter. We’ve discussed the reasons in a previous blog article, but even regional market experts have been surprised by the velocity of this week’s price shock.

Spot gas prices rallied to over $15/MMBtu for Monday, and day-ahead power prices are more than $100/MWh. Even worse, Jan-Feb gas basis spiked to more than $13, while on-peak blocks of wholesale power exceeded $140 before falling back slightly. These prices have increased by nearly 40% from already high levels seen only a few weeks ago. While prices for next winter have moved up less, they are rising.

Why the additional volatility?

  • A temporary shutdown of Canadian offshore production from Deep Panuke, raising more concerns about gas flow from the underperforming and oft-delayed platform
  • An early blast of cold winter weather covering the East
    • Daily temps will vary, causing day-to-day price movements, but Thanksgiving should be frigid, and the forecast for early December is cold.
    • Ongoing inability to deliver cheap shale gas supply to the region due to pipeline constraints on the Algonquin and Tennessee Gas Pipelines from the West, and reduced imports from Canada from the East via offshore supply and liquefied natural gas (LNG)

For customers in the region: Hopefully you have already hedged. If not, there is no cheap solution without a lot of risk or financial pain. And make sure to remember this as you develop a long-term energy strategy.

Posted: November 27, 2013