This post was originally featured in our March 2021 Monthly Monitor, which includes articles and analysis for the natural gas, electric, and crude oil markets. To sign up for the Monthly Monitor distribution list, click here. To download past issues, click here.
Edison has written several informational blog pieces over the past few months covering the regional price risks we believed could be lining up across the country and some of the market factors driving them. On February 12th, a once in a century cold blast sent already declining gas production down by another estimated 18-20 Bcf/day by freezing of off production at the wellhead. This shut off supply just as unprecedented demand was needing it the most, with 30-40 heating degree days lower than normal hitting the central United States.
What was the market reaction to this supply demand imbalance perfect storm? Price spikes in the Spot market. One region that experienced this anomaly was the Mid-Continent region, or MidCon. The MidCon region is made up of a handful of indices that aggregate supply primarily in the north Texas, Oklahoma, and Arkansas regions. Spot pricing for the MidCon region indices are shown for the month of February in the chart below.
The average regional price for the month of February landed at $57.54/MMBtu. However, the pricing for the six-day Polar Vortex high demand period of February 13th through 18th averaged a whopping $251.28 per MMBtu, which included the highest daily midpoint price ever seen at an eye-popping $1,193/MMBtu (Oneok OK point on 2/18). The other 22 days of February averaged a less surprising price of $4.70.
While the MidCon and Texas regions experienced budget breaking prices, widespread interruptions of gas supply, and utility operational flow orders in February, the impact was felt well beyond the area. Any region downstream that relies on supplies from those supply short areas felt the unexpected pain through the interconnectedness risk they have with the MidCon production regions. Although not as extreme as the MidCon spike, other areas that should expect to see sticker shock in spot priced gas when February invoices arrive include the Chicago area, south Texas, Arizona, and California markets, as well as south of the border in Mexico as many of those supply contracts reference U.S. based indices. Whether your location was impacted by this once in a lifetime event or not, a review of your procurement strategy is recommended to make sure that it matches up with the risk that comes with this new gas market landscape.