As arctic air pushed into the U.S. earlier this month, bringing more than a week of subzero temperatures to the Northland and causing Texas’s power system to collapse, the cost of natural gas surged to unprecedented heights.
Many Minnesotans stand to pay the price. At a special meeting of the state’s public utilities commission Tuesday, an Xcel Energy representative estimated its residential customers will pay $300 more than usual as a result of the natural gas price spike. Meanwhile, a CenterPoint Energy spokesperson estimated the average residential customer could see $300 to $400 tacked onto their bills, although that cost won’t be passed on immediately.
In Duluth, people who heat their homes with natural gas can count themselves among the fortunate few who will escape the sting of the temporary price spike.
That’s largely due to ComfortSystems’ use of long-term natural gas contracts, its ability to draw on stored reserves during the cold snap and the city’s access to multiple pipelines, explained Pete Upton, gas operations supervisor for the municipal utility. He described the impact fluctuating gas prices will have on ComfortSystems customers as “very minimal.”
Of course, natural gas users in Duluth still can expect bigger February bills than usual because consumption soared as the mercury dipped.
“We flowed more gas than we’ve ever flowed,” said Upton, noting that daily consumption in Duluth exceeded 40 million cubic feet for 11 straight days. That compares with seasonal average use of about 25 million to 30 million cubic feet of natural gas per day.
During the 11-day string of cold weather, Upton estimates ComfortSystems had to buy only about 15% of the gas it used at daily spot market prices, and it was able to buy that supply out of the Emerson Natural Gas Hub in southern Manitoba, where prices remained relatively stable compared to the U.S. market.
“We were able to flip over to Great Lakes Pipeline, and we were able to stay away from that $100 and $200 gas.”
Generally, natural gas previously had been selling for around $3 per MCF (1,000 cubic feet), said Adam Heinen, a public utilities rates analyst for the Minnesota Department of Commerce.
“The prices in Canada went up, but not more than you would expect for a cold weather event like this, relative to what happened in the southern hubs,” he said.
Upton said ComfortSystems paid about $10 per MCF for the gas it bought through the Emerson Hub. He said ComfortSystems has learned the dangers of overexposure spot market pricing after having to buy gas at $80 to $90 per MCF following the 2014 TransCanada pipeline explosion.
Heinen singled out recent big price spikes that occurred at the Ventura and Demarcation hubs, located respectively in northern Iowa and eastern Kansas.
Upton said Duluth sometimes draws from both of those hubs as well, via a different pipeline system.
Miles Kenny, CenterPoint Energy’s vice president of gas supply, noted that prices rose to $231 per MCF at the Demarcation Hub and $188 per MCF at Ventura, during the cold snap.
“The market dynamics were unprecedented,” Kenny said. “We saw widespread cold across the U.S., with cold temperatures causing forecasted demand to increase to record levels in some areas. And mirroring the unprecedented high demand was a drastic drop in the available market supply,” Kenny said.
He pointed out that there was a simultaneous problem with a freeze-off in supply processing, which “limited the market’s ability to get supply out of the ground and into the market.”
The result was an extreme jump in pricing.
But PUC Commissioner John Tuma said the magnitude of the increase remains hard to fathom.
“I just don’t understand the spike,” he said, questioning if opportunists hadn’t taken advantage of the situation. He cited a recent Bloomberg report in which Roland Burns, chief financial officer of Comstock Resources Inc., was quoted saying: “This week is like hitting the jackpot with some of these incredible prices.”
Tuma riffed on the comment.
“Talk about being tone-deaf, first of all," he said. "Two days after this disaster happened, running around saying you hit the jackpot. I don’t know what kind of greed-drunk mind would think that’s appropriate.”
PUC Chair Katie Sieben said: “We have many questions and few concrete answers.”
Noting that natural gas customers across the nation were affected by steep prices, Sieben said: “We’re working cooperatively with other state regulatory commissions, with the governor’s staff, with the Department of Commerce and with our federal congressional delegation. It is likely that given the severity of this problem, state and federal assistance could be required.
The state PUC voted 5-0 Tuesday afternoon to launch an investigation into the situation.
Kenny of CenterPoint Energy approved.
“We support a full review of what happened in the market," he said. "This is because we want to avoid what happened last week and make sure that it doesn’t occur again.”