Very cold weather increased the demand for natural gas used for home heating and for gas-fired electric generators in the Northeast, causing a spike in prices earlier this month. Prices spiked because of the increased demand for natural gas and because constrained gas pipelines could not handle the additional volume. Natural gas for all uses is increasing in the Northeast, and is expected to continue, as the EPA implements policies drastically reducing the use of coal fired generation and nuclear plants are being retired. The Northeastern states has been reducing their fuel diversity, but it is unclear whether decision makers are giving adequate consideration to the demands on natural gas–their replacement fuel of choice. New and expanded pipelines, more local production of natural gas and other means of obtaining abundant and reliable supplies are needed in the Northeast lest even more dramatic price shocks should occur due to inadequate supplies.
The recent cold wave should serve as an early warning signal to the people of the Northeast and their political leadership. On Monday, January 6, natural gas prices more than doubled in New England and almost quadrupled in New York. Electricity prices also spiked. On Tuesday, January 7, a megawatt-hour of electricity on the wholesale market, which normally sells for $40 or $50 was selling for $500 to $1,000 in New Jersey, Delaware and areas of Pennsylvania and Maryland. In parts of New England, the wholesale electricity prices were over $200. While in New York City, wholesale electricity prices were under $200 because electric utilities substituted oil for natural gas—oil, which is normally too expensive to burn as a generation fuel, was more economic than natural gas when the spike occurred.[i]