FERC highlights New England gas markets as winter approaches

HOUSTON — A Federal Energy Regulatory Commission study is warning that infrastructure constraints in New England could send the region’s natural gas prices soaring this winter from recent lows to among the highest in the world for a second year.

The commission’s Energy Market Assessment, delivered last week, noted that while forecasters didn’t expect the coming winter to be as severe as last year’s, there is a risk for a colder-than-normal season. The threat — combined with a continued infrastructure shortage — has sent an October measure of winter futures prices for gas near Boston to an average of more than $21, about 80 percent higher than traders bid them up before the last winter, according to the regulator’s analysts.

The Federal Energy Regulatory Commission, or FERC, oversees a large sector of the midstream and electricity industry.

After the briefing last week, commissioner Tony Clark laid out his interpretation of the problem: A lack of infrastructure has isolated natural gas markets in New England and the Northeast.

“That’s a huge concern,” Clark said at the presentation, “That seems to be what’s driving all this. It’s really not a supply problem that we have in this country, but we have a rather severe infrastructure problem.”

Related: Northeast U.S. gas at decade-high for winter on supply concern

The United States natural gas market is organized around numerous local hubs where gas is shipped from producers and then distributed to consumers and other uses such as electricity generation. The going rates for gas at those spot markets usually vary slightly as local demand and supply change, especially through the seasons

Markets in New England have seen large seasonal swings in the two winters as natural gas demand has grown and the infrastructure to supply the region has been congested.

Right now, as the summer draws to a close, there’s not much of a problem. Prices for natural gas in New England are currently among the lowest in the country, the FERC said, thanks to strong production and a mild summer.

The price of natural gas at the Algonquin hub near Boston and the New York Transco Zone Six hub fell to under $3 at the end of September, cheaper than the same period last year. The New England and Mid-Atlantic’s hub prices have been lower than the national benchmark Henry Hub Louisiana spot price since April, the regulator said.

National average prices for natural gas at spot markets are between 15 percent and 30 percent higher at the end of September when compared to the previous year, FERC analysts said.

However, New England’s low prices aren’t expected to stay in the less-than-$3 range.

The commission’s analysis noted that the average of January and February 2015 contracts for natural gas futures prices for the Algonquin hub were priced at around $21, more than five times for the same contract at the Henry Hub. Last winter, cold snaps briefly sent prices briefly to near $80.

Midstream companies have announced a number of new pipelines and expansions to others recently. In just one example, Houston-based Spectra Energy Corp. announced a $3 billion expansion to its New England pipeline network.

But many of the new lines won’t be in service until at least 2016. As the FERC noted in its report, New England, “will need to rely on fuel diversity to meet the region’s energy needs.”