Extreme Cold Temperatures Result In Heating Demand Surge

It’s better late than never for winter weather to show up as the Northeast has been hit by extremely cold weather to start 2013, which has caused a large increase in heating demand.

Natural gas rose 5% at both hubs with the Mont Belvieu price increasing to $3.54 per million Btu (/MMBtu) and the Conway price increasing to $3.56/MMBtu. As we went to press, prices in New York had risen to more than $12.50/MMBtu and in Boston they had increased to more than $30.00/MMBtu.

“The temperature-driven swings of prices underscore the vulnerability of balances to winter weather trends. Temperatures are expected to average below normal from the Midwest to the Northeast in the next 10 days. From the start of the winter season, temperatures have averaged 4% warmer than normal, pushing prices down to an average of $3.51/MMBtu from the start of November to date,” according to Barclays Capital’s Gas and Power Kaleidoscope for January 22.

Though they didn’t experience the increases as natural gas, propane prices at both hubs rose the week of January 16 with the Mont Belvieu price rising 3% to 82¢ per gallon (/gal) and the Conway price increasing 4% to 78¢/gal. The expected colder-than-normal temperatures will continue this week and into February, which should help to work off the storage overhang that has been building for much of the past year. This will become increasingly important as it is now expected that Enterprise Products Partners’ export terminal expansion will not complete this week, but by the end of February.

Both hubs saw ethane prices increase this week. This was caused by the rise in propane prices, as there wasn’t a noticeable increase in petrochemical demand or intake during the week. The Mont Belvieu price rose 10% to 24¢/gal, which was its highest price in a month. The Conway price improvement was smaller at 7%, but the price of 22¢/gal was the largest at the hub since it was 26¢/gal the week of March 21.

Despite improvements in crude prices, heavy natural gas liquids (NGL) prices largely fell at both hubs. However, this appears to be a short-lived anomaly as heavy NGL prices improved dramatically as the week came to a close.

The lone heavy NGL to show improvements at both hubs for the week overall was isobutane, which rose 3% at Conway to $1.69/gal and improved marginally at Mont Belvieu to $1.76/gal. Isobutane’s sister product, butane was a mixed bag as it rose 1% to $1.65/gal at Conway, but decreased 1% to $1.63/gal at Mont Belvieu.

Pentanes-plus (C₅₊₎ retained its status as the NGL with the highest value, but this value dropped at both hubs. The Mont Belvieu price fell 2% to $2.11/gal, its lowest level since it was $2.08/gal the week of October 10. The Conway price was largely flat at $2.17/gal, its lowest price in six weeks.

The theoretical NGL barrel improved 2% to $40.74 per barrel (/bbl.) at Conway with a 1% gain in margin to $27.73/bbl. The Mont Belvieu barrel rose 1% to $41.03/bbl., but had a 1% decrease in margin to $28.10/bbl.

The most profitable NGL to make at both hubs remained C₅₊ at $1.77/gal at Conway and $1.72/gal at Mont Belvieu. This was followed, in order, by isobutane at $1.33/gal at Conway and $1.41/gal at Mont Belvieu; butane at $1.28/gal at Conway and $1.27/gal at Mont Belvieu; propane at 45¢/gal at Conway and 50¢/gal at Mont Belvieu; and ethane at negative 2¢/gal at Conway and 1¢/gal at Mont Belvieu.

Natural gas in storage decreased 172 billion cubic feet to 2.996 trillion cubic feet (Tcf) from 3.168 Tcf the week before, according to the Energy Information Administration. This was 5% less than the 3.153 Tcf posted last year at the same time, but remained 12% greater than the five-year average of 2.676 Tcf.

According to the National Weather Service’s forecast for this week, natural gas withdrawals should remain high as it anticipates temperatures to remain colder than normal throughout the Northeast, Mid-Atlantic and much of the Midwest. We do note that the National Weather Service’s weekly forecast has been wrong twice to start the year when it failed to predict Arctic blasts that severely affected temperatures in the northern parts of the country. These incorrect forecasts have benefited producers, but this time producers are hoping for accurate forecasts.

Contact the author, Frank Nieto, at fnieto@hartenergy.com