Recently we’ve seen basis prices* for natural gas delivered this winter nearly double in New England due to the interaction between demand and supply, and regional factors that affect each. On the national front, other natural gas consuming regions, such as the Northwest, remain relatively stable, with prices near the midpoint of their last 12 month trading range. In real world terms, we are seeing January natural gas prices in the Northeast at approximately 100% higher than prices in the Northwest. Like the national economy, the energy markets are a complex beast, driven by economic spending, weather, exploration and production, and the prices of alternative energy sources in the market, to name just a few. So, what is behind this recent price rise in New England? Much can be linked to three drivers:

• A relatively constrained delivery network of pipelines,
• Recent weather volatility, and
• A reduction in supply imports due to what are expected to be lower regional prices.

Elements of each of these factors were discussed in recent publications by the Chronicle Herald, a Nova Scotia based publication, an industry report published by FERC earlier this month, and in a Platts blog posting by Elizabeth Barrett. They are good reads if you have the time; those pressed for it should start with the Platts Blog, and save the FERC document for an evening read. The latter offers an overview of the factors driving the energy markets in the near term, and is good as a general primer for what drives market prices overall.

Bottom line, though: it’s important to understand there can be a dramatic difference in energy prices from region to region. A prudent energy manager needs to be informed of these regional price trends, not just the national indices like the NYMEX Henry Hub future contracts.

*Basis is commonly described of as the difference in value of natural gas between a local delivery point and the CME/NYMEX Henry Hub contract.