Energy prices soar as temperatures plummet

Published on January 05, 2018 by Liz Carey

© Shutterstock

The so-called “bomb cyclone” of Winter Storm Grayson hit the Northeast this week, sending energy prices soaring due to increased heating demand amid the arctic temperatures.

The heavy heating demand sent natural gas prices higher as heavy snow fell along the East Coast and winds cut power to more than 70,000 homes and businesses along the Eastern Seaboard.

Despite the rise in demand for fuel, suppliers said the natural gas price increase was unlikely to hit consumers. Daphne Magnuson, spokesperson for the Natural Gas Supply Association, said the price increases were temporary.

“Basically, the market saw short-term price spikes, but those are not prices that the majority of consumers will see,” Magnuson said in an interview with Daily Energy Insider. “Those prices are cash prices that reflect last minute needs. The majority of utilities and manufacturing customers buy their energy through advanced purchases where the price is not the same as the price being reflected on the cash market. The cash market prices are pretty dramatic and make for a good story, but most customers won’t see prices like that in their monthly bill.”

Magnuson said that utilities have access to natural gas storage that would provide them with increased supply if demand increases.

In the meantime, energy providers in the Northeast have switched their operations to other, cheaper forms of fuel to power energy plants.

Rich Dewey, executive vice president of the New York Independent System Operator, which manages and monitors the region’s electricity grid, told the Washington Post that most power plants in the Northeast have switched to cheaper fuels like oil. Regulations already in place require that power plants have the oil needed to last while operating at full capacity.

Dewey said demand is expected to hit its peak on Friday at 24,340 megawatts and that the New York regional grid has more than enough to handle the load at 38,777 megawatts for power generation capacity.

“Cold weather is coming and NYISO is prepared,” the organization said in a Facebook post. “We currently have adequate generator fuel supplies and no major transmission outages, but continue to monitor conditions closely.”

On its blog, “Inside Lines,” PJM Interconnection, operator of the nation’s largest power grid, said there were adequate supplies throughout the storm and also colder temperatures expected to last through Sunday. “During the cold weather, PJM has had adequate power supplies and maintained operating reserve margins. There have been no concerns with fuel availability. No reliability issues are expected through the weekend,” the organization said.

PJM added that it was managing the highest winter load since 2015.

The biggest issue facing power suppliers is their pipelines, officials said.

According to ISO New England, which runs the New England states’ power grid, production capacity is well above what it anticipates peak need to be, but damage to other plants may complicate fuel availability. Most plants, it said in a statement, are operating from multiple fuel sources. ISO New England’s primary fuel sources on Friday were oil and nuclear power.

“The cold weather continues to affect wholesale energy prices as well as the types of power plants that are being used to meet demand. High demand for natural gas for heating is causing natural gas pipeline constraints that are resulting in high natural gas prices. As a consequence, both oil- and coal-fired power plants are generating at much higher levels than is typical. The high fuel prices are pushing up wholesale power prices as well. In general, a snow storm doesn’t affect forecasted demand for power, unless there are local power outages caused by stormy conditions,” the organization said in a statement.

While one of its plants went offline due to the storm, ISO New England said there was not an immediate threat to reliability expected.

With distillate inventories, including heating oil, currently at their lowest levels since 2015 in the New England and Mid-Atlantic regions, fears of a heating oil shortage continue.

In response, tankers carrying heating oil have set out from Europe headed to the East Coast to address supply line concerns. Ice breakers are in use in key ports in Boston, New York and Philadelphia to keep shipping lanes open.