Cold Snap Saps Fuel Supplies; Prices Spike

Higher natural gas prices are also leading to sharply higher wholesale electricity prices as power utilities snap up gas at almost any price to run power plants to meet higher-than-normal winter demand.

Jan 22, 2014 at 12:58PM

NEW YORK (AP) -- A second fierce blast of winter weather is sapping fuel supplies in many regions and sending prices for propane and natural gas to record highs.

Higher natural gas prices are also leading to sharply higher wholesale electricity prices as power utilities snap up gas at almost any price to run power plants to meet higher-than-normal winter demand.

Propane users will get pinched the most. Those who find themselves suddenly needing to fill their tanks could be paying $100 to $200 more per fill-up than a month ago. Homeowners who use natural gas and electricity will see higher heating bills because they'll use more fuel. But prices won't rise dramatically because utilities only buy a small portion of the fuel at the elevated prices.

A swirling storm clobbered the mid-Atlantic and the urban Northeast on Tuesday, followed by bitter cold as arctic air from Canada streams in, causing homeowners to crank up the thermostat.

Michael McCafferty, a propane expert at Platts, an energy information provider, said the wholesale spot price of propane rose 70% between Friday and Tuesday to a record $2.45 per gallon. Both the size of the jump and the price itself he called "unprecedented."

According to the Energy Department 5.5 million U.S. households heat with propane, mostly in the Midwest and South.

Propane supplies were already low for a few reasons. Farmers harvested corn late in the year, and much of it was wet, forcing them to buy propane to dry the grain before storage. Then the polar vortex that swept the country in early January pushed up heating demand and drained supplies further. At the same time, less propane is arriving from Canada because of higher demand there and a reversal of a pipeline that had brought propane south.

The Energy Department said last week supplies of propane fell to the lowest level on record for the second week of January.

On Tuesday, prices for natural gas for immediate delivery averaged $120 per thousand cubic feet in the Northeast, a record, according to Samantha Santa Maria, managing editor for North American natural gas at Platts. By comparison, the futures price, for delivery a month from now, finished the day at $4.43 per thousand cubic feet.

"We've seen record high prices from New York to the Carolinas," she said.

Santa Maria said the prices are being driven higher by power generators desperate to make sure they have enough gas to run power plants -- and not because supplies in the U.S. are particularly tight. "We think a lot of this is fear factor," she said.

Natural gas is the most-used fuel for heating -- the Energy Department says 58.6 million households rely on natural gas. It is the second-most used fuel to generate electricity, after coal, but because of the way power is priced, the price of natural gas-powered electricity often sets the wholesale price for all electricity in a given region

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