Arctic blast sends natural gas prices to new record in North Carolina

Charlotte Business Journal
By John Downey

Extreme weather, which included lows under 10 degrees in Charlotte, caused a record spike in natural gas prices last week.

Duke Energy and Dominion Energy argue that natural gas price spike to $175 per dekatherm and spot shortages demonstrate the need for the Atlantic Coast Pipeline through Virginia and North Carolina.

The Southeast’s recent arctic blast drove natural gas prices up to a record $175 per dekatherm in North Carolina and Virginia from average rates around $3 per dekatherm.

That’s left Duke Energy Corp. and Dominion Energy Inc. arguing the late December to early January cold snap demonstrates the need for the Atlantic Coast Pipeline.

Duke spokeswoman Tammie McGee says prices did not spike because of a shortage of natural gas. “There is plenty of natural gas available,” she says. “Prices dramatically increased during the past week because of a transportation shortage.”

The high price reached at the end of last week shattered the $125 per dekatherm record set during the polar vortex in 2014. That price is based on regional costs for natural gas deliveries in an area that covers southern Maryland into parts of South Carolina.

Disputed claim
Environmental groups and other project opponents dispute the need for the $5.5 billion pipeline, which would transport gas from West Virginia almost to the coast of Virginia and then south past Lumberton, N.C.

Kate Addleson, director of the Sierra Club's Virginia chapter, says there is no evidence the pipeline is necessary for adequate gas supplies or for gas to produce electricity. "Operators are prepared for events like these and have been preparing since the last polar vortex," she says. "Study after study, and expert after expert, have strongly contended our grid is reliable and stable — especially with the increasing diversification of generation sources because of the addition of solar, wind and energy efficiency in the past decade."

The Sierra Club is one of six groups that together filed a new legal challenge to the pipeline on Monday. That filing with the U.S. Court of Appeals for the Washington, D.C., Circuit again raises their contention there is no evidence the pipeline is needed.

“We must hold (the Federal Energy Regulatory Commission) accountable for failing to evaluate the need for this project in a rational manner,” says Peter Anderson, the Virginia program manager for Appalachian Voices.

Service interrupted
But Duke and Dominion claim the evidence is clear in the wake of the recent extreme weather. Dominion spokesman Aaron Ruby cites the huge spike in prices and says that Virginia Natural Gas was forced last week to interrupt gas service to 11 industrial customers — who had agreed to contracts for interruptible service. One customer had deliveries curtailed for four days, he says.

“We’ve said for a long time that the pipelines serving our region are stretched too thin and cannot handle the coldest winter days,” he says. “Our economy isn’t going to grow if we have to curtail our industries whenever it gets cold, or if consumer prices skyrocket when our pipelines are overstrained.”

Piedmont Natural Gas, a subsidiary of Duke (NYSE:DUK) says it has also had to curtail service for a small number of industrial customers.

McGee points to Duke’s own experience during the coldest weather. Duke paid an average of $40 per dekatherm for gas to operate its natural gas plants from Jan. 1 through Jan. 8. The highest price day saw charges of $120 per dekatherm. (Duke, as a very large customer, is able to get gas at better prices than some other industrial buyers.)

Appalachian gas
McGee says that is because the entire state is dependent on the Transco Pipeline, the only interstate pipeline that runs into North Carolina. With all the state’s gas left to that single source coming from the Gulf of Mexico supply was scare and prices were high, she says.

Natural gas from the Appalachian region, essentially the Marcellus and Utica shale fields that would be the ACP’s source, was averaging just $3.70 per dekatherm for that same week.

Virginia is served by more than one interstate pipeline, but Transco or interstate lines linked to it account for more than 75% of the gas in the state. Ruby says Dominion has faced a situation similar to Duke’s.

And some customers will ultimately pay the price for the spikes, he says. The price of natural gas is a “pass through” cost for electric and gas utilities in North Carolina and Virginia. That means they cannot make a profit on the price of the gas. But the cost is passed directly on to users.

Some protected
Piedmont spokeswoman Loree Elswick says its residential gas customers are protected from such price spikes because the utility contracts for residential service a year at a time. Prices for residential customers are already fixed.

Gas utilities like Piedmont and PSNC Energy, can change charges from month to month to account for swings in the price they pay for the fuel. Electric utilities, which have had to pay higher prices for natural gas during the extreme cold, generally can change the fuel charge only at specific intervals in the two states. But the price spike will impact their customer bills.

And some natural gas customers also face hikes. In North Carolina, Rocky Mount Public Utilities has already informed its customers the charge to recoup the increased cost of gas will raise the average January bill for a typical customer to $151.83, up from $121.83. “The increase ... will remain in place throughout the winter months,” the utility warned its customers in a press release Monday.