Algonquin, city-gates spot gas set to rise as AGT outage, cold snap collide

With a force majeure on Algonquin Gas Transmission limiting the amount of gas that can move into the Boston metropolitan area from Appalachia, a forecast cold snap April 27-29 could see Algonquin city-gates spot gas and other regional gas prices soar in the near term.

Cash Algonquin, city-gates gained $1.82 in April 22 trading, climbing to trade at $7.77/MMBtu, according to preliminary settlement data. The day-on-day gains flipped Algonquin city-gates' basis spread to a $1.38 premium to cash Henry Hub from a 60-cent discount.

After seeing its highest-priced, most volatile winter since the 2013-2014 polar vortex, cash Algonquin, city-gates has observed a relatively mild April so far. The New England benchmark has averaged a 14-cent discount to cash Henry Hub month to date, with daily spreads remaining within a dollar of cash Henry Hub in either direction.

This steady pricing may be interrupted in the near-term with the coming cold snap and an ongoing force majeure limiting flows into parts of New England, making much higher pricing possible.

Cold snap

The average temperature in the US Northeast was forecast to fall into the 40s Fahrenheit on April 27-29, data from S&P Global and CustomWeather shows. Daily averages in the mid- to upper-50s F are more typical for the Northeast at this time of year.

The largest drop in temperature was expected on April 27, with the regional average temperature set to fall to 48 F from a forecast 56 F on April 26. Analytics from S&P Global show projections that Northeast residential-commercial demand will increase steeply, jumping around 2.4 Bcf/d, or 39%, to 8.65 Bcf on April 27, and climbing a further 890 MMcf to 9.54 Bcf on April 28.

AGT force majeure

Algonquin Gas Transmission has declared a force majeure on the 26-inch line of its J System in Massachusetts, after experiencing an unplanned outage at Valve Section 5, the company reported in a critical notice posted at 4:31 pm ET on April 24. The outage will require the pipeline system to isolate that part of the system, slashing nominations downstream of Trapelo to zero for the foreseeable future.

With flows through the J System lateral restricted, parts of the Boston metropolitan area will have to draw on gas supplies from Everett LNG import terminal, effective gas day April 25, AGT said in an April 24 notice. Sendout from Everett LNG is primarily utilized in high winter demand days. New England is the only region in the continental US that regularly relies on LNG imports, exposing the region to global gas prices, which are often higher than domestic gas prices. European gas benchmark, the Dutch TTF, most recently settled at $29.08/MMBtu, while the Platts Japan/Korea Marker price for June was assessed at $24.91/MMBtu on April 25.

The impacted meters are primarily located in Middlesex, Massachusetts, and include National Grid – Everett, Brookford St, National Grid -- Medford, Mystic, as well as the J-2 System head of lateral.

Pipeline nomination data shows that flows through the J System 2 dropped to 19 MMcf on April 25, down from averaging 125 MMfc/d for the seven days prior to the outage.

So far, pipeline nomination data has not shown a substantial uptick in Everett LNG inflows on to the AGT system. This could change should temperatures drop, and demand rises, in line with forecasts.

Outlook

The burst of sharply colder-than-normal temperatures is expected to be short-lived, with S&P Global and CustomWeather forecasting that the average Northeast temperature will rise back into the mid-50s F on April 30.

The higher temperatures will likely keep a lid on res-comm demand, limiting the pricing impact of the AGT outage.