FERC Warns of Higher Winter Energy Prices, Potential Supply Disruptions

By Christian Roselund

The Federal Energy Regulatory Commission (FERC) has joined the chorus of voices warning of higher energy prices and even potential supply disruptions as winter approaches. In its Winter Energy Market and Reliability Assessment 2022 – 2023, FERC states that average natural gas futures prices for the winter of 2022 – 2023 have risen 30% year-over-year to $6.82 per million British thermal units (MMBtu). Prices in New England are more than 3x the national average at $23.57/MMBtu. The agency has also warned of possible capacity shortfalls in the event of extreme winter weather for New England, Texas, and parts of the Midwest.

An irony to this report is that higher than average temperatures are expected for the coming winter months, which should lead to reduced electric and gas demand. However, FERC warns that “prolonged cold weather events nevertheless could cause disruptions and price impacts, even within the context of a warmer winter.”

Another irony to the warnings being given about lack of gas supply is that domestic production of natural gas is at an all-time high, with average winter production of 2.81 billion cubic meters per day. This is a nearly 20% increase from the winter of 2017-2018, with production increasing every winter except the winter of 2020-2021. However, demand for gas is also at an all-time high, driven by both domestic consumption and America’s transformation into the world’s largest exporter of liquefied natural gas (LNG). FERC cites forecasts that indicate that net gas exports will increase 24% this winter to nearly 379 million cubic meters per day.

The United States’ move to becoming the world’s largest natural gas exporter means that international markets are affecting U.S. gas prices and markets. In New England, which is more dependent upon natural gas from outside the region for both heating and electricity than other parts of the United States, pipeline capacity constraints further drive up prices. New England is also unlike other U.S. regions in that it imports a small portion of LNG in the winter.

FERC’s concerns extend beyond high prices. The agency has also issued warnings about potential electricity capacity shortfalls in three regions. New England again tops the list. FERC states that the region could face challenges during an “extreme winter event,” noting that the firm nature of gas contracts for heating and limited pipeline capacity could leave power plants with short supplies. For such an event, FERC expects the region to rely on emergency purchases of power from outside the region and operational actions which could include requesting curtailment from large industrial and commercial users.

FERC has issued similar warnings for the Electric Reliability Council of Texas (ERCOT) grid. While FERC notes that ERCOT has made progress in adding generation and in adapting operational measures to lessons learned during the deadly Winter Storm Uri in 2020, that operational measures including emergency alerts could be needed under extreme conditions.

Source: Winter Energy Market and Reliability Assessment 2022-2023 (FERC)