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Looking for Energy in All the Wrong Places

This article originally appeared Jan. 24, 2014, on Real Money. To read more content like this, + see inside Jim Cramer's multi-million dollar portfolio for FREE Click Here NOW.

With the surprising deep and long freeze, liquefied natural gas (LNG) importers are suddenly busy. The busiest import terminals and regasification facilities are found in the northeast, including New Brunswick, Massachusetts, Maryland and Georgia.  They are owned by Repsol (French), GDF Suez (French), Dominion Resources (D - Get Report) and Kinder Morgan's (KMI) El Paso Pipeline Partners (EPB).

There is plenty of natural gas. The issue is transportation. The nation's natural gas pipelines are at capacity. The pipelines are full. They cannot accept additional demand from consumers. Natural gas cannot reach the nation's consuming markets.

Short of curtailing service, the last choice is to buy spot LNG from suppliers in Trinidad, Nigeria and Egypt. After taking delivery at import terminals closest to demand, importers must regasify the LNG into natural gas and deliver it to the pipelines. The delivered price is astronomical.

As the U.S. Energy Information Administration reported earlier the hub price for natural gas has been stable, but climbing. Henry Hub spot price slowly rose by 10% or 15%. However, the market at the other end of the pipeline saw completely different pricing.

For example, this week New York City saw record price increases. A week ago, prices were $4.92 per million British thermal units (MMBtu). Then local prices reached a record $121.68/MMBtu on Tuesday. Prices fell somewhat on Wednesday, closing at $84.02/MMBtu. That represents a 1,500% increase!

Boston began the week at $6.63/MMBtu, tripling to $20.90/MMBtu on Friday, reaching $58.39 on Tuesday and closing at $78.30/MMBtu Wednesday. That is a 1,000% increase.

These numbers are wholesale. They are local, not national prices. They represent the market on the delivery end of the pipelines, not the supply end or the nation's hub.

These numbers also represent the price local utilities pay for natural gas. Gas utilities must add additional fees on top of these prices to cover their costs of delivering servicing gas to their residential, commercial and industrial consumers.  

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