| NEW YORK
NEW YORK Jan 22 When computer coders at the
IntercontinentalExchange built a platform for trading natural
gas in 2001, they only allowed space for two-digit entries. With
gas around $5 per million British thermal units, prices above
$99 just didn't seem feasible.
A freezing start to 2014 changed all that.
After prices in the poorly supplied U.S. Northeast spiked to
new highs in the first week of January, ICE raised the
limit for trades from $99 to $199 per million British thermal
units on Jan. 6, reflecting a new reality in the U.S. gas market
and ushering in a three-digit era.
It was a prescient move. In a second bout of cold on
Tuesday, next-day gas prices in New York City broke $100 for the
first time ever, and then some. Prices on the Transco pipeline
at the New York Citygate surged as high as $135 per mmBtu as
snow fell across the city, and forecasters predicted another
On average, gas on the Transco line in New York sold for
$120 on Tuesday, breaking the $55 record set on Jan. 6.
Atlanta-based ICE, which runs financial exchanges, confirmed
the change to pricing limits but declined to give a reason.
The United States has ample supplies of gas, but the price
spikes reflect a recurring conundrum: A lack of pipelines to
take gas from major supply centers to market. This bottleneck
pushes prices higher during periods of high demand like the
first few weeks of this year.
Tuesday's rise in prices was an example of "scarcity
pricing" caused by weaknesses in the U.S. natural gas delivery
system to the Northeast, said Teri Viswanath, an analyst at BNP
"There is a growing problem with our infrastructure, and the
events this week highlight the known problem with insufficient
pipeline capacity to meet the growing demand for gas in the
Northeast region," said Viswanath.
AT ANY PRICE
Likely purchasers of Tuesday's $100-plus gas were gas-fired
power plants ordered by New York's power grid operator to supply
power on Wednesday, regardless of the price.
Some plants that do not have the option of burning other
fuels were picked to keep heat flowing, a spokesman for New York
Independent System Operator, which coordinates power supply to
the state, told Reuters on Tuesday, on a day when temperatures
did not breach 13 degrees Fahrenheit (-11 degrees Celsius).
Plants caught empty-handed had to pay whatever price would
persuade suppliers with extra inventory to sell. Sometimes,
businesses with firm supply are willing to shut down for the day
and sell their gas - at a steep premium.
"The price has to move up to a level that attracts some of
that extra inventory into the marketplace," said Tim Evans, an
energy analyst at market research unit Citi Futures Perspective.
Prices could rise even further as gas takes the place of
coal as a cleaner alternative for power generation in the coming
years. Many coal plants are slated to retire in the Northeast,
limiting the amount of coal that can be used generate power when
gas prices go too high.
Power generators caught short of supply will feel the pinch
by a fuel commonly thought to be booming in production.
"It's dangerous to the financial health of lots of people,
especially consumers who didn't book up a fixed-price contract
for the full winter," Evans said.
(Editing by Edward McAllister and Jonathan Oatis)