Cold weather brings near record-high natural gas spot prices

Natural gas spot prices at several trading hubs approached their record highs briefly during the week of February 14 amid significantly colder-than-normal weather that affected most of the Lower 48 states. The cold weather led to natural gas supply and demand imbalances. Natural gas production declined because of freeze-offs (temporary interruptions in production caused by cold weather) amid high demand for heating and power. At the benchmark Henry Hub, natural gas prices reached $23.86 per million British thermal units (MMBtu) on February 17, the highest real (inflation-adjusted) price since an Arctic blast on February 25, 2003. Henry Hub prices averaged $5.49/MMBtu in February, the highest monthly average since February 2014.

Many regional natural gas trading hubs also reached very high spot prices. In mid-February, 105 of the 178 natural gas pricing points reached recent high prices, according to Natural Gas Intelligence (NGI) data. High prices predominately occurred in the South, Southwest, and Midwest regions of the United States.

The Permian Basin in West Texas was significantly affected by freeze-offs. The spot price at the nearby Waha Hub reached $206.19/MMBtu on February 16, compared with an average of $2.83/MMBtu during the first week of February. Southern California also experienced higher prices because a significant amount of its natural gas supply comes from the Permian Basin. The price at Southern California (SoCal) Citygate reached $144.00/MMBtu on February 12. By comparison, the daily price at Pacific Gas and Electric (PG&E) Citygate, located in Northern California, was considerably lower at $6.25/MMBtu because Northern California receives more of its natural gas from the Rocky Mountain region and Western Canada.

In Oklahoma, Oneok Gas Transmission (OGT) reached what might be the highest natural gas price at any natural gas hub in history at an average of $1,192/MMBtu on February 17, according to NGI data. The spot price at OGT was $2.91/MMBtu during the first week of February.

The elevated spot prices throughout the United States were short lived. As temperatures rose, alleviating supply constraints and tempering demand, natural gas spot prices at the Henry Hub quickly began to decline to pre-cold snap levels, reaching $2.84/MMBtu on February 22.

Principal contributor: Stephen York