U.S. Energy Firms Prepare as Extreme Freeze Could Hit Natural Gas Supplies

(Reuters) — U.S. power and natural gas companies were preparing on Friday for extreme cold over this Martin Luther King Day holiday weekend that is expected to cause record gas demand while also cutting supplies by freezing wells.

Lower gas supplies at a period of surging demand could test power systems in hard-hit areas. Winter storms in 2021 and 2022 caused widespread damage and power outages in part because many power plants lacked sufficient fuel to operate.

U.S. gas output was on track to drop by 3.7 billion cubic feet per day (Bcf/d), or 3.4%, over the past five days to a preliminary 10-week low of 104.5 Bcf/d on Friday, according to financial firm LSEG.

That decline so far was small compared with total gas supply losses of around 19.6 Bcf/d during Winter Storm Elliott in December 2022, and 20.4 Bcf/d during Winter Storm Uri in February 2021, according to LSEG data.

Still, U.S. gas demand, including exports, was on track to reach 165.9 Bcf/d on Jan. 15, 174.3 Bcf/d on Jan. 16 and 172.9 Bcf/d on Jan. 17, according to LSEG.

Those daily demand forecasts would top the current all-time high of 162.5 Bcf/d set on Dec. 23, 2022, during Elliott, according to federal energy data from S&P Global Commodities Insights.

"Take Extra Care"

The freeze is expected to move from the U.S. Pacific Northwest to the central and eastern parts of the country over the next few days. Power grid operators in its path have already told generator owner members to prepare their units to run before electric demand starts to increase.

In a sign of what may be coming, next-day power prices at the Mid Columbia hub in the Pacific Northwest soared to a 16-month high of around $850 per megawatt hour (MWh) over the past couple of days. That compares with averages of $81 in 2023 and $52 from 2018 to 2022.

"Generator owners must take extra care to maintain equipment so that it doesn’t freeze in the cold ... particularly as natural gas pipelines may become constrained as the cold spell progresses," PJM Interconnection said in a release.

PJM is the nation's largest grid operator covering parts of 13 states from Illinois to New Jersey.

Several power generators agreed to pay PJM $1.2 billion to settle a dispute after they were unable to operate when called upon by PJM during Elliott.

Grid operator Southwest Power Pool (SPP) and the Electric Reliability Council of Texas (ERCOT) have also issued weather advisories.

Projected overnight temperatures in Midland, Texas, in the Permian shale, the nation's biggest oil and second biggest gas producing basin, will drop below freezing every night from Jan. 13-16, falling to a low of 6 degrees Fahrenheit (minus 14 degrees Celsius) on Jan. 15, according to meteorologists at AccuWeather.

Freezing weather can lead to so-called freeze-offs, which can reduce oil and gas production.

Prices Jump

Power prices at the PJM West Hub, which covers an area from northwestern Pennsylvania to Washington, D.C., were on track to jump nearly fivefold from around $35 per MWh for Friday to about $170 next week, according to LSEG and the Intercontinental Exchange (ICE).

That would be the highest next-day price for PJM West power since December 2022 when it topped out at $179 per MWh. It averaged $37 in 2023 and $42 from 2018 to 2022.

Spot gas prices at the U.S. Henry Hub benchmark in Louisiana, meanwhile, were on track to jump from around $3.15 per million British thermal units (MMBtu) for Friday to about $4.54 next week, according LSEG and ICE data.

That would be the highest next-day price for Henry Hub gas since December 2022 when it hit $7.20 per MMBtu. It averaged $2.54 in 2023 and $3.61 from 2018 to 2022.

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