Natural gas price heats up in frigid weather

It may be a question of getting the gas to the right place, no matter the price

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Televisions and furnaces battled over natural gas during the coldest days of the year last week.

The region's abundant fuel, pulled from the Marcellus Shale, is being used increasingly as a source for electricity and heat. When both are experiencing record demand, it's a question of getting the gas to the right place, no matter the price.

The nation's largest electric grid servicing Pennsylvania and 12 other states, managed by Valley Forge-based PJM Interconnection Inc., lost about 20 percent of its power supply during the frigid peak Tuesday. Nearly a quarter of that loss came from natural gas plants that needed more fuel to make power.

"This is pretty different than anything we've seen in a long time," said Paula DuPont-Kidd, a PJM spokeswoman. The last time temperatures fell this much was in 1994, she said. The last time PJM asked consumers to voluntarily conserve energy was during a heat wave in 2006.

"Calling for conservation is something we don't take lightly or do very often," she said.

But on Monday and Tuesday, PJM appealed to consumers to mind their usage. That, along with other mitigation strategies, helped it avoid any blackouts or brownouts.

"What seems surprising is that given all the gas generation that we have in PJM, relatively speaking, the number of gas curtailment outages -- it's really small," Ms. DuPont-Kidd said.

Akron-based FirstEnergy Corp.'s gas plants -- it has seven gas-fired generation facilities that feed into PJM -- all operated without interruption, according to spokeswoman Jennifer Young. In fact, what malfunctioned was a transformer in FirstEnergy's Beaver Valley nuclear plant, kicking one 911-megawatt unit offline. The company is still investigating why that equipment broke and whether it was related to the cold weather. The big issue during last week's cold spell wasn't rolling blackouts or frigid homes. It was skyrocketing power and gas costs.

"The irony of this whole thing is you have record demand and you have record supply, yet you have these crazy prices," said Samantha Santa Maria, managing editor of North American Natural Gas for Platts, a publisher of energy news and prices.

The problem, she said, is there aren't enough pipelines to get the gas all the way to the local delivery points where utilities and industrial customers take control of the fuel.

While the country is in the middle of a record pipeline build out, she said, most of that is being driven by producers who need to get their gas to a trading point, a liquid market hub typically not near consumers. "That's as far as producers are willing to go," she said. "They know if they get there, they'll meet buyers there."

Only 20 percent of the billions of dollars being spent on capacity expansion projects is going toward pipelines that run from these hubs to local delivery point, she said.

During times when population centers, such as New York and New England, are ravenous for gas to feed boilers and furnaces, the fuel bottlenecks in the hubs and prices soar.

On Monday, a pipeline hub near New York City saw a 300 percent spike in the price of natural gas for the next day, settling at $52.80 per million btu. By Wednesday, prices had decreased to an average of $4.20.

Contributing to the constraints were problems with natural gas compressor stations that feed the pipelines. A compressor in Delmont on Spectra Energy's Texas Eastern pipeline malfunctioned because of the extreme cold and took 10 percent of the pipeline's capacity out of the system that day.

Texas Eastern recently finished an expansion project that extends pipelines into Manhattan, allowing buildings that burn oil for heat to switch to cleaner-burning natural gas, said Phil West, a spokesman for Spectra. That also means that when such pipelines are constrained, the new customers have to shell out more money to get their new fuel.

But Western Pennsylvania escaped the worst of the problems -- and the high prices.

The Delmont compressor station outage did limit supply for Pittsburgh's Peoples Natural Gas, but not by much, said Jeff Nehr, director of business development at the North Shore-based utility. That's because Peoples pulls much of its gas from wells in its service area, rather than relying entirely on transmission lines.

Between Peoples, T.W. Phillips and Equitable Gas, which are all part of the same parent company now, there are 8,000 gathering lines feeding into the company's utility pipes. Peoples also has its own storage, and access to two large storage fields that it sold to EQT Corp. last month when its purchase of Equitable Gas was finalized.

"If you have a good portfolio, and you have diversity in your supply sources, you make it up elsewhere," Mr. Nehr said.


Anya Litvak: alitvak@post-gazette.com or 412-263-1455.

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