David Givens Boston LDC Forum 2013 Presentation on New England winter gas and power markets

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Winter 2013 impact on gas-fired generation in New
England
Boston, Massachusetts
Presented at the 18th Annual Northeast LDC Gas Forum
David Givens, Head of Gas and Power Services, North America
June 10, 2013

• Gas price rebound magnified in region last winter
• Physical constraints abound
• Exceptionally favorable reversal from 2012 for sellers
to power plants in New England
• Hands off approach by FERC in favor of club
regulation
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• 100 daily, 80 bid
week indexes across
US & Canada
• Companies
transacting cash-
settled requests for
purchase (RFPs)
against Argus
indexes
Argus Natural Gas Americas

Price gains in northeast US outpace west
• Algonquin Citygates
◦ $9.90/mmBtu
◦ ↑ 70pc since 2010
• Transco New York
◦ $7.00/mmBtu
◦ ↑ 20pc since 2010
• Pacific Gas & Electric
◦ $3.90/mmBtu
◦ ↓ 25pc from 2010
0
2
4
6
8
10
12
Argus daily spot prices January to April
2010 2011 2012 2013
Source: Argus Media

• Colder weather in winter 2012-13 vs. 2011-12
• Reduced LNG imports
• Production declining from Sable Island gas field
offshore Nova Scotia
• Delayed startup of Encana’s Deep Panuke gas field
offshore Nova Scotia
Colder winter, lower LNG imports hit northeast

• Algonquin Gas Transmission taking more supply from
Millennium and Tennessee Gas pipelines
◦ winter 2012-13 50pc of Algonquin supply
◦ winter 2010-11 25pc of Algonquin supply
• Daily capacity constraints at major compressor
stations on Algonquin’s northbound mainline
• Merchant coal plants in the money
Flow patterns shift in New England in 2013

• Six days in Jan-Feb when New England gas-fired
generation exceeded 150,000 MWh/d
• Gas prices weakened
◦ Algonquin 11-Jan: $4.615
◦ Algonquin 29-Feb: $3.255
• Power grid was reliable
2012 winter unfavorable for spot trade

Steady gas use in Jan-Feb 2012 for New England power
0
100
200
300
400
4-Jan 18-Jan 1-Feb 15-Feb 29-Feb
'000MWh/day
Source: ISO-NE
Coal Gas Oil Total

CT hub real-time stronger
0
50
100
150
200
250
3-Jan 17-Jan 31-Jan 14-Feb 28-Feb
$/MWh
Source: ISO-NE
2013 2012

Gas accommodates swings in winter 2013
0
90
180
270
360
450
'000MWh/day
Source: ISO-NE
Coal Gas Total Oil

Iroquois Zone 2 illustrates deliverability
0
10
20
30
40
$/mmBtu
2013 2012

Algonquin Citygates show constraints
0
10
20
30
40
$/mmBtu
2013 2012

Tennessee Zone 6 conditions not as severe
0
7
14
21
28
35
$/mmBtu
2013 2012

• Fuel inventories low after cold January
• Daily re-offer provisions utilized
• More than 6,000 MW of gas- and oil-fired generation
unavailable 8-9 February
• In response to generation and transmission
outages, ISO needed more generation, and “more
than half a dozen” generators informed the ISO that
they could not get gas
New England was vulnerable in February

New England gas-fired generation varies
65
95
125
155
185
‘000MWh/day
Source: ISO-NE
2013 2012

MWh/day 2012 2013
Winter gas-fired generation finds inflection point
Source: ISO-NE
Avg 131,879 117,819
Median 133,304 113,307
High 157,187 180,222
Low 81,232 66,510
Total MWh
(Jan-Feb)
19,531,071 18,242,384

2012 2013
Estimated revenue from gas-fired generation differs
Estimate based on ISO-NE output data
16-Jan $8,021,771 24-Jan $36,701,517
4-Jan $6,860,574 23-Jan $36,385,056
Jan-Feb. total $266,267,193 Jan-Feb. total $675,717,818

• “Addressing gas dependence is our highest priority”
-- Kevin Kirby, vp, market operations
• Day-ahead power scheduling advanced two hours to
10am starting 23 May
• Other changes later this decade
◦ As fuel costs change
‐ Hourly (rather than daily) offers
‐ Intra-day offer modifications (rather than only prior to the
operating day)
◦ Capacity markets
◦ Non-delivery penalties
ISO New England response

• Last few percentage points of grid reliability
• Last miles to the citygate
• Regional variations apparent
• No appetite for common energy scheduling day
FERC gas-power coordination docket

• Expectation of a connection from EBB data to which meter
serves a specific generator
• Lack of your lifetime experience and understanding of the
systems in the region
• Overtakes in evening power peak followed by undertakes
to avoid pipeline penalties during morning power peak
• Requests for more gas cycles or more information about
status of grid, construed as discriminatory
FERC gas-power coordination discussion

Some markets lack typical contango
5.50
5.75
6.00
6.25
6.50
2014 2015 2016 2017 2018 2019
$/mmBtu
Algonquin Dracut

• Independent market valuation to support investment
and trading decisions
◦ 63 hubs assessed daily across North America
◦ Wide range of data sources used for liquid hubs & periods
◦ Locational, time spreads used for illiquid hubs & periods
• Monthly, quarterly, seasonal, calendar contracts
• Minimum 7-year forward curves
Argus forward curves

• Weather, LNG shortages supported gas, power prices
• Power plant sales had superior margin per mmBtu
• But markets work, and sales eventually curbed
• Unease over lack of automated fuel supply solution
suggests return to trading profitability
Key Takeaways

• Argus Media US natural gas indexes
• ISO New England data on real-time prices, generation
stack by source
• Presentation to FERC, 16 May, 2013; ISO New England
Winter Operational Experiences and Regional
Actions, Kevin Kirby, VP, market operations
• FERC Dockets ER13-895-000, ER13-895-001
Sources

David Givens
Head of Gas and Power Services, North America
david.givens@argusmedia.com
1-202-349-2891
Washington, DC
www.argusmedia.com
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David Givens Boston LDC Forum 2013 Presentation on New England winter gas and power markets

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David Givens Boston LDC Forum 2013 Presentation on New England winter gas and power markets