US Northeast power and gas prices strengthen even as pandemic persists

As the US grapples with the sustained impact of the coronavirus pandemic that began in March, spot power and gas prices have shown recent signs of recovery.

Total gas demand in the Northeast has increased since mid-May, when it bottomed out around 12.4 Bcf/d, the lowest demand levels have been since May 2017. Over the same period, key regional power hubs have averaged near year-ago levels.

At the start of May, the Algonquin city-gates price dropped to its lowest level since December 2015 to $1.05/MMBtu, plummeting to a near five-year low. Transco Zone 6 NY had a similar response, falling to $1.04/MMBtu for gas day May 15, the lowest level seen since October 2016.

A notable boost to regional gas supply came on May 4, when an explosion on Texas Eastern's 30-inch line led to southbound flows through the Owingsville compressor to zero capacity, increasing the supply in an already flooded market.

In power dailies, throughout April and into the start of May, day-ahead on-peak prices at key Northeast power hubs were trading well below year-ago levels. The NYISO Zone J New York City Hub on-peak spot package averaged near $20.50/MWh, down 30% from April 2019. Similarly, the ISO New England Mass Hub on-peak package averaged near 50% lower on the year at about $17/MWh.

Despite the bearish headwinds the Northeast region has experienced since the onset of the coronavirus pandemic in March, prices have seemed to recover – with, of course, a pullback in total gas production. EQT, the largest natural gas producer, announced a curtailment of 1.4 Bcf/d on May 15, amid the low-price environment and demand destruction seen in the Northeast region.

In addition to curtailed gas production, natural gas demand from power burn has provided price support. Levels hit above 10 Bcf/d for two days during the week of June 8-12, reaching yearly highs for 2020, according to S&P Global Platts Analytics. Looking ahead in the near term, regional temperatures over the next two weeks were expected to average above seasonal norms, according to CustomWeather.

The wide disparity in year-on-year power pricing has tightened since mid-May, as pricing support increased. NYISO Zone J day-ahead on-peak in June has averaged just 17% lower than year-ago levels, while the corresponding Mass Hub package has averaged about 13% lower than June 2019.

Platts Analytics suggests peak summer burns will provide surprise to the upside, with July and August burn potentially averaging more than 41.5 Bcf/d, 500 MMcf/d higher year on year, making a new record.

Forwards packages and basis trends

Northeast summer power forwards have averaged below year-ago levels all year. Like the day-ahead prices, the Mass Hub summer 2020 on-peak package traded well below the corresponding 2019 package. The wide year-on-year gap has tightened so far in June, with the 2020 package recently pricing less than $9 below year-ago levels.

Basis gas prices have seen strength in the past month in the Northeast, aside from the sub-$1.50/MMBtu cash prices. Algonquin-city gates summer strip has been tightening over the past two weeks, reaching 2 cents above Henry Hub on June 16, 2020. Transco Zone 6 NY has done the same, dropping 35 cents/MMBtu below Henry Hub from below 41 cents/MMBtu from one week prior.

The US National Weather Service seasonal outlook depicts a very high likelihood of above-average temperatures in July-September across the Northeast, adding support for 2020 packages.