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NEW YORK (Reuters) - Brutally cold weather this week laid bare critical weaknesses in the Northeastern U.S. natural gas system, leaving some states paying vast sums for supplies as arctic weather enveloped the region. Despite its location alongside the biggest natural gas deposit in the country, the northeast region saw record price spikes on Monday as an unprecedented surge in demand from power plants and homeowners overwhelmed pipelines. The rise in prices forced spot-market buyers in New York and New England to pay up to 20 times more for their gas than amply supplied hubs in Texas and Louisiana. Keep up with this story and more by subscribing now The volatility shows that nearly a decade into a drilling boom that has flooded much of the country with gas, a lack of pipelines has left some areas vulnerable to shortages this year and potentially for years to come. It is a weak spot in what has been a huge resurgence in U.S. natural gas production over the past 10 years, and exposes how in some areas pipelines have failed to keep up with the new supplies that have come out of the ground. "There's a reason why New England is the most volatile power and gas market in the country," said Addison Armstrong, senior director of market research at Tradition Energy in Stamford, Connecticut. "It has been slow on the uptake and now we're behind the curve in terms of getting additional capacity brought in there." In New York on Monday, natural gas traded at an average of $55 per million British thermal units on the Transco pipeline. Highs for the day reached $90. The average price broke highs first recorded in 2001, years before the region began importing gas from the Marcellus. In Boston, gas on the Algonquin pipeline swung up by $18 per mmBtu then down by $9 per mmBtu as forecasts turned warmer on Tuesday. The Marcellus shale, centered in Pennsylvania, has emerged as the giant of the U.S. natural gas market. It currently produces 13 billion cubic feet of natural gas per day (bcfd), accounting for about 18 percent of total U.S. supply, up from just 2 bcfd in 2010, according to the Energy Information Administration. Over the next three years, pipeline capacity from the Marcellus is expected to grow to carry 8.7 bcf more gas per day, 4.3 bcf of which will be directed to the Northeast, according to data from Jonathan Gould, a senior oil and gas analyst at Genscape. But far less of that will reach New England, Gould said. Moreover, even that growth rate is not enough to keep up with the robust production in the region, so flows from wells must be tapered, Gould said. Despite years of supply bottlenecks, only one announced project is targeting New England states. Spectra Energy's Algonquin Incremental Market project will expand an existing system through Connecticut and Massachusetts carrying 342 million cubic feet of gas per day. The pipeline is not scheduled to be completed until November 2016, however, and will not reach past Boston. "There is a constraint getting all that gas out of the area," Gould said. "In the Marcellus, you've got so many gas wells and it's such a constrained system, that the pressure on the system keeps gas from flowing how it would normally flow." It is a tough break for the six New England states that have been quick to change from coal to gas-powered electric plants. Natural gas now supplies most of the electricity to the region. Between 2011 and 2017, New England will have cut its electricity generated from coal by more than half, according to Reuters data. Some companies are being forced to reroute gas originally meant for New England to other regions to alleviate the supply built up in the Marcellus, Armstrong said. Building too much capacity too fast could flood the market and kill demand on days that are milder than seen recently. Developing gas supply becomes "lumpy," according to Gordon Pickering, a director in Navigant's Energy practice in Sacramento, who said gas companies tend to develop gas supplies before they develop pipelines. "More supply means lower prices," said Pickering. "So pipeline decisions require a long-term view of the market." |
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WASHINGTON (Reuters) - The U.S. economy grew at its quickest pace in 11 years in the third quarter, the strongest sign yet that growth has decisively shifted into higher gear. The economy appears to have sustained some of the momentum in the fourth quarter. Other data on Tuesday showed consumer spending rose solidly in November, which could offset an unexpected weakness in durable goods orders. "After four years of rocky recovery the U.S. economy is now hitting its stride ... and growth should remain good next year, with lower gasoline prices a big plus for consumers," said Gus Faucher, a senior economist at PNC Financial Services in Pittsburgh. Keep up with this story and more by subscribing now The Commerce Department revised up its gross domestic product growth estimate to a 5.0 percent annual pace, citing stronger consumer and business spending than it had previously assumed. It was the fastest growth pace since the third quarter of 2003. The economy was previously reported to have expanded at a 3.9 percent rate. GDP growth has now been revised up by a total of 1.5 percentage points since the first estimate was published in October. Big revisions are not unusual as the government does not have full information when it makes its initial estimates. U.S. stocks rallied on the data, with the Dow Jones Industrials <.dji> breaking through 18,000 points for the first time. Prices for U.S. Treasury debt fell, while the dollar rose to a fresh eight-year high against a basket of currencies. The economy expanded at a 4.6 percent rate in the second quarter, meaning it has now experienced the two strongest back-to-back quarters of growth since 2003. Economists polled by Reuters had expected growth would be raised to a 4.3 percent pace in the third quarter. But the pace of growth likely slowed in the fourth quarter. In a second report, the Commerce Department said non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, was unchanged in November after declining 1.9 percent in October. The continued weakness in the so-called capital goods orders is at odds with industrial production data, which has shown strong momentum in the manufacturing sector. SOLID CONSUMER SPENDING In a third report, the Commerce Department said consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.6 percent in November after gaining 0.3 percent in October. A rapidly strengthening labor market and lower gasoline prices are boosting consumer spending, which should help to cushion the economy from slowing growth in China and the euro zone, as well as a recession in Japan. That should provide the economy with sufficient momentum in 2015 and keep the Federal Reserve on course to start raising interest rates by the middle of next year. Underscoring the economy's firming fundamentals, growth in domestic demand was revised up to a 4.1 percent pace in the third quarter instead of the previously reported 3.2 percent pace. It was the fastest pace since the second quarter of 2010. In the GDP report, consumer spending grew at a 3.2 percent pace, the fastest since the fourth quarter of 2013, instead of the previously reported 2.2 percent rate. Growth in business investment was raised to an 8.9 percent pace from a 7.1 percent rate, with a stronger pace of spending than previously thought on equipment, intellectual property products and nonresidential structures accounting for the revision. Inventories were also revised higher, with restocking now being neutral to GDP growth instead of being a mild drag. That also helped to offset downward revisions to export growth. But inventories could undercut output in the fourth quarter. Spending on residential construction was also revised higher, as were government outlays. While export growth was trimmed, trade still contributed to GDP growth. |