The chill puts a zing in natural gas

Spot prices shoot higher as Texas producers get a lift from widespread cold weather, and refiners gain as fuel oil demand rises

The cold weather gripping most of the nation pushed natural gas demand to an all-time high this week, driving up prices from Manhattan to Midland and giving a temporary boost to many of the Texas companies that produce and sell the commodity.

Skyrocketing natural gas prices have also triggered a windfall for refiners, as Northeastern power plants opt to burn cheaper fuel oil to make electricity and residential demand for heating oil climbs, developments that analysts said should further drain the nation’s petroleum inventories and help support higher oil prices. Crude closed above $62 a barrel on Thursday, the highest settlement in three years.

“When you get the kind of cold snaps that we have now, oil becomes the fuel of choice,” said Dave Gaier, a spokesman for Houston-based NRG Energy, which runs four power plants in the Northeast.

Natural gas spot prices peaked Wednesday on the Gulf Coast at $6.62 per million British thermal units, more than triple what they were last week. In the Northeast, natural gas prices rose to about $38 per million cubic feet on Thursday, nearly double from a week earlier. Lowsulfur heating oil prices are hovering around $2 per gallon, the highest in about two years, according to data from S&P Global Platts, an energy research firm. Low-sulfur heating oil inventories are down almost 30 percent as compared with last year.

Since the New Year, frigid temperatures have kept a stranglehold on the Northeast, Midwest and South, with the intense cold expected to drive natural gas demand even higher by the end of the week and tax power generators and pipelines to the max. In Pennsylvania, walls of snow have trapped residents in their homes. In Massachusetts, frozen sharks washed up on

Cape Cod. In North Carolina, state officials declared an emergency as the region braced itself for ice, high winds and several inches of snow.

The cold weather is also curtailing supplies. In West Texas, temperatures have fallen below freezing and have slowed natural gas production in Texas’ Permian basin.

By Wednesday morning spot prices at the Henry Hub, a main distribution point for natural gas in Louisiana, hit the highest level since February 2014, according to U.S. Energy Department.

Texas companies with natural gas operations in the Northeast have reaped the rewards. Over the past five days, stock prices have risen more than 5 percent for Houston’s Cabot Oil and Gas, more than 6 percent for Southwestern Energy and 7.7 percent for Noble Energy, all of Houston.

Who does the frigid weather benefit?

“Anyone who has natural gas and has the ability to sell it,” said Ed Hirs, an energy economist at the University of Houston.

Already the effects of the New Year’s cold snap have eclipsed those of the Polar Vortex, an Arctic weather pattern that froze the Northeast during the winter of 2014. This year, on New Year’s Day, national demand for natural gas was more than 140 billion cubic feet a day — by some estimates more than twice typical daily demand. As residents in New England turned up their furnaces, major natural gas pipelines were running near or at capacity, including the Algonquin pipeline run by Enbridge Energy Partners, a Canadian company with major operations in Houstuon.

Meanwhile, the cold and strain on the nation’s pipelines and power plants are unlikely to ease until next week, said Chris Peterson, an analyst with the U.S. Energy Information Administration.

“Natural gas demand could go higher later this week than where it is right now,” Peterson said Tuesday. “Then, at least in the Northeast, things seem to subside on Sunday.”

Once the cold snap breaks, natural gas production in the West Texas’ Permian and in the Marcellus Shale will likely boost natural gas inventories and lower prices again, analysts said.

“The natural gas here is so prolific and we have such inventory that as soon as this cold snap breaks, we should see prices come back down,” said Brian Youngberg, a senior energy analyst at the St. Louis-based firm Edward Jones.

Power generators such as Houston’s NRG Energy, which owns three power plants in Connecticut and one on Cape Cod, were burning fuel oil because of exorbitant natural gas prices. For days, more than 30 percent of New England’s power came from fuel oil — a source that normally accounts for around 3 percent of the power mix, according to ISO New England, the region’s grid manager.

The Northeast has contended with spiking natural gas prices for years because of a lack of pipeline capacity. But efforts to expand pipeline projects have run into fierce resistance. A proposal to build a pipeline to move natural gas across western Massachusetts and southern New Hampshire to the Boston area faced strong political and community opposition and was shelved by the Houston company Kinder Morgan in 2016 when it couldn’t sign up enough customers.

An effort by Enbridge to expand the Algonquin pipeline was shut down by a Massachusetts court. But the latest cold snap might renew calls to expand pipelines throughout the Northeast, said Bill Yardley, president of gas transmission and midstream at Enbridge.

“It’s a good reminder that the problem hasn’t gone away. We have to do something,” Yardley said. “I’m sure that we are going to regroup and take a look at reviving a project into the region.”

ryan.handy@chron.com twitter.com/ryanmhandy