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New England Winter-22 gas forwards top $20 as region faces tight import market

Highlights

January, February contracts trade at $21 to $22/MMBtu

JKM tops $32 in Sept. 28 trading; TTF settles above $27

Everett LNG terminal imported 19.2 Bcf, winter 2020-21

The winter 2022 forwards contracts at Algonquin city-gates are trading at record highs recently as New England's gas market prepares to compete in the global LNG arena for peak-season cargoes.

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On Sept. 27, forwards prices at the Boston-area hub for January and February 2022 climbed to around $21 to $22/MMBtu – the two contracts' highest settlement prices on record dating back at least eight years, S&P Global Platts' most recently published M2MS data showed.

Since the start of June, winter gas prices at Algonquin have more than doubled from the low-$9 area as an enduring supply crunch in the LNG market has pushed global price indexes to record highs.

On Sept. 28, Northeast Asia's benchmark LNG import price, the Platts JKM, surged to a fresh record at over $32/MMBtu. At the Dutch TTF hub in Europe, the prompt-month price also hit a record high Sept. 28, settling north of $27/MMBtu, price data from S&P Global Platts showed.

Strong global prices could make for a bullish winter in New England's gas market this year, where limited storage and constrained pipelines keep end-users dependent on LNG imports on peak winter heating days.

Last season, prices at Algonquin briefly surged to around $11 to $12 in January and again in February but averaged just $4.92 and $8.37/MMBtu during the two months, respectively. In previous winters, Algonquin has seen similar spikes, sometimes into the $20 to $30 range, although only for brief periods.

This season, historically tight supply in both the domestic and global markets could mean sustained price levels near $20, with prices on peak heating days potentially spiking significantly higher.

LNG imports

During the winter 2020-2021 heating season, New England's Everett LNG terminal imported a total 19.2 Bcf. In the winter season prior, the terminal took 22.2 Bcf, according to S&P Global Platts Analytics data.

As is the case every winter, weather will be the critical factor in determining the total volume of LNG imported to New England and the potential severity of the region's price spikes this season.

According to a preliminary seasonal forecast from the US National Weather Service, published in mid-September, New England is expected to see a 40% to 50% risk for above-average temperatures from December to February, potentially putting a damper on the region's bull gas market.

Another factor that could potentially limit price spikes in New England this winter is fuel switching. During the coldest, peak-demand days of the season, generators across New England have frequently dispatched both fuel oil and coal – generation fuels that are typically used sparingly in New England.

During an extreme cold spell in 2018, fuel oil generated upwards of 100,000 MWh in ISO New England on some days, accounting for over 30% of the system's power generation share. Coal-fired power has generated upwards of 50,000 MWh on individual winter days, providing as much as 15% of the generation share, data from the New England Independent System Operator shows.

Combined, mild weather and fuel switching could limit the severity of this season's gas price spikes in New England. With Algonquin's cash market already trading in the mid-$4s/MMBtu as of late September, though, it seems likely that the region will face its highest winter price averages in years this season.