Bitter cold weather moving into the U.S. Northeast Wednesday drove wholesale natural gas prices in New York to their highest levels ever, as businesses and homeowners cranked up their furnaces to fend off the chill.
The scramble for supplies caused prices in New York City to spike almost 200 percent higher, with next-day deliveries fetching $48 per million British thermal units, up more than $31 from Tuesday and the highest ever for the area, according to one industry analyst.
But trade sources -- noting prices in most other areas were slipping this week despite the arctic cold -- said the surge in New York was an isolated case and should be short-lived.
"This is a transportation issue. There's a bottleneck into the delivered market area (New York City). There's tons of supply around but no way to get it to the people who need to burn it," said one Texas-based trader. He said there was more demand than pipeline capacity to New York this week.
Traders noted that wholesale prices in Toronto -- which is just across Lake Ontario from New York State and also in the grip of the arctic chill, were off more than 20 cents Wednesday to the $5.80s per million Btu's.
Likewise, gas prices in Chicago, a key gas consuming area, and on the Gulf Coast, a major source of supply, were down sharply from Tuesday's levels.
"There's plenty of gas around, but these (high New York) prices will last as long as the cold does," a Midwest trader said.
Pipeline limitations played a critical role in California's 2000-2001 energy crisis, as the state saw the highest wholesale gas prices in the nation due to capacity constraints on importing gas and shipping it around the state.
The surge in California wholesale gas to near $60 helped drive power prices sharply higher because of the state's heavy reliance on gas-fired power generation.
Natural gas accounts for roughly 10 percent of all power generation in New York, according to the U.S. Energy Information Administration.
Record or near-record low temperatures are predicted for Boston and New York for the rest of the week, with Boston dipping to below zero Fahrenheit and New York hovering around zero on Friday.
But private forecasting firm AccuWeather expects New York temperatures to climb back into the 30s next week, near the normal high of 36-38 degrees for this time of year.
Traders said strong Northeast wholesale prices could last into next week despite the predicted warm-up, noting that temperatures would still be relatively chilly and some industrial firms might have to pay back gas borrowed this week.
But they said the spike in wholesale gas prices would not necessarily mean much higher retail prices for consumers because most regional utilities pull mainly from gas bought and stored last summer at much cheaper prices.
Storage gas is a key source of supply during peak winter demand periods. (Additional reporting by Spencer Swartz in San Francisco)