| HOUSTON, March 6
HOUSTON, March 6 Natural gas pipelines and power
utilities across the United States struggled for several weeks
to keep lights on and homes warm through the coldest winter in
decades, but it may take many months for the cost and the
fallout of the so-called "polar vortex" to work through the
As sub-freezing temperatures spread in January and
February, spot natural gas prices spiked at many gas delivery
points in the Midwest, Northeast and New York, pushing wholesale
power prices above $100 per megawatt-hour for days at a time.
Customers will soon receive gas and electric bills,
reflecting the higher cost of gas in January.
In unregulated power markets, January bills will present a
"double whammy," said Nick Akins, chief executive of American
Electric Power Co, one of the largest U.S. electric
utilities that generates and delivers power to 5 million
customers in 11 states.
"The energy price took off and they are going to get a big
surprise since they are using more electricity to start with and
prices went way up," Akins said.
In regulated markets, utilities may be able to pass on
higher fuel costs quickly. Elsewhere, higher winter gas prices
may not be seen until utilities seek regulatory approval later
Across the country, the U.S. National Oceanic and
Atmospheric Administration said the 2013-2014 winter season so
far has been 4 percent colder than normal and 12 percent colder
than last year.
While painful, those utility bills represent a sliver of the
potential cost and impact of the harsh winter, gas and power
industry executives said at the IHS CERAWeek conference in
Houston, an annual meeting of global energy leaders.
The stress seen on both the gas and power infrastructure
raises questions about fuel diversity, environmental regulation,
grid operation and market structure, participants said.
Akins said 89 percent of the nearly 7,200 megawatts of
coal-fired generation that AEP expects to retire in the next two
years was running during the recent arctic blast.
"You have to think twice about taking capacity out of the
market; that's, in effect, is what the (environmental)
regulation and the market construct is doing," said Akins.
As the nation increases its reliance on gas for power
generation, performance of the natural gas network should be
reviewed, Akins said.
"We need to make sure that the underlying gas infrastructure
is good if we are going to rely on it," he said.
The cold snap showed that the current gas market, while
tested, is much more robust than during previous weather or
supply events that pushed gas prices at the Henry Hub above $10
per million British thermal units for extended periods, said the
head of a gas industry trade group.
"To see record-setting cold, record-setting demand for gas
and daily draws from storage and we only saw (Henry Hub) gas to
$6 and quickly recede shows how robust the system is," said
Marty Durbin, president of America's Natural Gas Alliance.
In New England, where gas delivery was hampered by
constrained pipelines, Durbin said just 1 percent of the trades
for 18 billion cubic feet of gas needed on Jan. 7 came at the
very high spot market price.
The severe weather showed more investment is needed to move
abundant new supplies of shale gas to markets, said Gregory
Ebel, president of Spectra Energy Partners
It also showed how such investment can dampen gas
volatility, he said, citing a new 12-mile pipeline built by
Spectra to supply gas to New York.
The new supply line reduced the premium New York customers
paid for gas this winter to 13 percent over the nearby
Pennsylvania market, down from a 64-percent premium seen last
winter, he said.
"Are we going to get rid of (price) volatility? Probably
not," said Ebel.
Lynn Good, chief executive of Duke Energy, the
nation's largest utility with 7 million customers, said many
lessons will be learned from the polar vortex.
"I view this as a warning," Good said. "It gives us chance
to understand where the gas infrastructure is; to understand the
value of very diverse resources and how well they worked. We
need to stress the system every once in a while," Good said.