US Northeast power and natural gas prices have increased with the region expecting some of its coldest weather this winter on Jan. 11, which has boosted electricity and heating demand.

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Day-ahead power prices in the New York Independent System Operator and ISO New England markets were above the most recent three-month averages Jan. 10, with NYISO Zone J New York City at nearly $160/MWh and ISO-NE Internal Hub at nearly $165/MWh around 10 am ET, according to ISO data.

The on-peak day-head NYISO Zone J trailing three-month average was $57.33/MWh and ISO-NE Internal Hub has averaged $64.14/MWh over that period.

NYISO peakload is forecast to reach 22,264 MW on Jan. 11 when temperatures are expected to hit a low of 15 degrees Fahrenheit, according to the National Weather Service. The grid operator's peak winter demand forecast is 24,025 MW under normal weather and the extreme winter weather scenario showed that peak demand could increase to as much as 26,230 MW.

NYISO peakload averaged 19,660 MW in December 2021 and 20,361 in January 2021.

ISO-NE peakload is forecast to reach 20,200 MW on Jan. 11 with temperatures in Boston expected to bottom out at 8 degrees F while only reaching a high of 11 degrees F. Prior to the winter, ISO-NE projected power demand to peak at 19,710 MW during average winter weather conditions and 20,349 MW under below-average conditions.

ISO-NE peakload averaged 16,364 MW in December 2021 and 16,795 in January 2021.

Day-ahead power prices in New York and New England had fallen back a bit by the later afternoon of Jan. 10. NYISO Zone J was at $146.31/MWh and ISO-NE Internal Hub was at about $150/MWh around 3 pm.

The ISO-NE power generation fuel mix during the afternoon of Jan. 10 consisted of 41% gas, 26% nuclear, 12% oil, 12% renewables, 5% hydropower and 3% coal, according to ISO data.

The NYSIO fuel mix consisted of 30%% dual fuel units that can run gas or a backup like oil, 22% hydropower, 21% nuclear, 18% gas, 7% wind and 1.5% other renewables.

Northeast gas market dynamics

Spot gas prices in the US Northeast remained buoyant in Jan. 10 trading, with S&P Global Platts preliminary settlement data showing a number of regional locations trading between $20-$30/MMBtu. Some locations rose to multiyear highs.

Cash Iroquois, Zone 2 gained $6 to reach $28.55/MMBtu, which will be its highest price since January 2018, when prices soared above $100/MMBtu on Jan. 4, 2018, if it holds to final settlement.

Similarly, Dracut, Mass. was trading at $30/MMBtu, while Algonquin, city-gates shed $1.84 to trade at $20.12/MMBtu.

Appalachian spot gas prices also moved higher in Jan. 10 trading, but haven't seen the same recent wild swings as Northeastern demand locations, remaining solidly below $4/MMBtu on Jan. 10. Eastern Gas, South – formerly Dominion, South – gained 15 cents to trade at $3.60/MMBtu.

Total gas demand has soared in the Northeast in reaction to the cold temperatures, with Platts Analytics data showing a daily upswing of 3.59 Bcf, or 12%, to 33.46 Bcf Jan. 10. The bulk of the increase has come from elevated residential-commercial demand, which reached 20.66 Bcf Jan. 10, more than double the 9.24 Bcf observed at the start of the month.

However, elevated demand is only one part of the story when it comes to the higher pricing environment, with Platts Analytics data showing that regional gas production has fallen around 770 MMcf/d from the December average.

Marcellus gas production dropped to 27.05 Bcf Jan. 10, down around 520 MMcf/d from a month-to-date average of 27.57 Bcf/d and around 1.14 Bcf/d from the December average. Utica production saw a smaller downward shift, averaging 2.06 Bcf/d for January, down 150 MMcf/d from averaging 2.21 Bcf/d in December.

With the Northeast accustomed to cold winters, freeze-offs are not as common as in warmer climates like Texas and the Southeast.

Instead, the impact on gas production of cold temperatures could be an issue of pipeline capacity, according to Platts Analytics. Colder temperatures typically trigger draws from storage, which take up space on pipelines, leaving less room for production to flow.

Outlook

Looking ahead, the Jan. 11 temperature plunge was anticipated to be short-lived, with the average Northeast temperature expected to climb closer to seasonal norms as the week progresses.

Peakload in both NYISO and ISO-NE was forecast to decrease throughout the week as temperatures increase with highs of 39 degrees F in Boston and 41 degrees F in New York City on Jan. 13.

The lower expected demand will likely ease regional spot prices for both gas and power over the next several days, although a forecast temperature drop over the coming weekend could lead to another price spike later in the week.