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

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Energy and commodity price benchmarking and market insights

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 AmericaJune 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

Topics to be covered

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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 Algo

nquin

Iroquois z

2

Transco

NY

Tetco

M-3

Chicago

Consumers

Mich Con

PG&ESo

Cal0

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

4-Jan 18-Jan 1-Feb 15-Feb 29-Feb0

100,000

200,000

300,000

400,000

Coal Gas Oil Total

Source: ISO-NE

'00

0 M

Wh

/da

y



CT hub real-time stronger

3-Jan 17-Jan 31-Jan 14-Feb 28-Feb0

10

20

30

40

50

60

70

2013 2012

Source: ISO-NE

$/M

Wh



Gas accommodates swings in winter 2013


90,000

180,000

270,000

360,000

450,000

Coal Gas Total Oil

Source: ISO-NE

'00

0 M

Wh

/da

y



Iroquois Zone 2 illustrates deliverability


10

2013 2012

$/m

mB

tu



Algonquin Citygates show constraints


10

20

2013 2012

$/m

mB

tu



Tennessee Zone 6 conditions not as severe


7

14

2013 2012

$/m

mB

tu


• 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

3-Jan 17-Jan 31-Jan 14-Feb 28-Feb 65,000

95,000

125,000

155,000

185,000

2013 2012Source: ISO-NE

‘00

0 M

Wh

/da

y



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

2014 2015 2016 2017 2018 20195.50

5.75

6.00

6.25

6.50

Algonquin Dracut

$/m

mB

tu


• 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


Any questions?

David GivensHead of Gas and Power Services, North [email protected], DCwww.argusmedia.com

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