Fallout of February's Freeze

Mother nature is the never-ending wildcard in the natural gas market with February winter weather being notably shifty. Ice Storm Uri plunged the mid and Southern U.S. into freezing temperatures, leaving millions in the dark and crashing the energy infrastructure of many states. Production freeze-offs led to widespread natural gas price hikes as the energy markets were sent into disarray. Available pipeline capacity and storage deliverability were stretched to their limits during this period of reduced supply and peak demand. This resulted in exponential natural gas spot price increases across the country, particularly in the Midcontinent and Texas, as liquidity seized up. 

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The highest recorded spot prices at various points across the country during the February 12-17, 2021 period are displayed in the map above and represent all-time highs in many of these locations. During this period, triple-digit pricing became commonplace for several days, and trades at a couple of locations even topped the $1,000 mark. The highest overall price of nearly $1,200/MMBtu was recorded at Oneok, Oklahoma, and Henry Hub set a single-day spot price record of $23.61/MMBtu. 

Much of this pricing dynamic was driven by pipeline penalties commonly 2 to 3 times the Gas Daily daily spot index. This was further emphasized by government officials begging for gas to be preferentially rerouted for human needs. State authority allows LDCs some latitude during times like these to allocate gas from manufacturers and industrial users in order to supply hospitals, nursing homes, and other various high need consumers. The Force Majeure clause of the NAESB contract will be tested in court as price extremes were chased by profiteers seeking opportunistic windfalls.

However, in the wake of this storm, other areas of the market have once again proven themselves very flexible. Prices normalized, production and LNG exports were quick to recover to their respective averages, and storage withdrawals quickly moderated once the coldest period passed. As shoulder season approaches, winter is expected to end on a more relaxed note in March.