LNG Suppresses New England Wholesale Electricity Prices

New England saw an even colder winter this year than last reports the Hartford Courant, yet wholesale electricity costs were lower than last winter. The Courant reports temperatures across New England averaged 25.5 degrees this winter, versus 26.5 last winter. ISO New England data show that wholesale energy costs averaged $77 per MWh (or 7.7 cents per kWh) this winter.

Prior to the winter, however, energy markets priced power at $184 per MWh. Utilities procured electricity to meet demand in October, when the market was still high, locking in rates of 12 cents or higher, whereas the market was charging just 7 to 8 cents. The high electricity rates, coupled with low rates from retail providers, drove many customers to switch to retail providers, as Retail Energy Buyer described last week.

What caused wholesale prices to fall?

The Courant explains that liquefied natural gas (LNG) was used extensively to supplement regular gas supplies. In part, LNG prices were lower due to reduced demand in Asia, where Japan restarted its nuclear plants and China’s growth slowed. And in part, GDF Suez, owner of an LNG terminal near Boston, distributed 70 percent more LNG than last year.

Platts notes that oil prices were dramatically lower this winter. Thus, rather than turning to natural gas on very cold days when gas supplies were constrained and prices were high, many generators turned to oil, which was cheaper than gas at those times.

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