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El Nino Effect to Smooth NatGas Ride This Winter, FERC Says

Most forecasters are expecting a strong El Nino event to help make the upcoming winter relatively mild, and that, in turn, will help to limit energy shortages and price volatility, according to a Winter Energy Market Assessment issued by FERC's Office of Enforcement (OE) Thursday.

"Natural gas and electric spot and futures prices are lower than last year, consistent with expectations that energy markets are well positioned to manage potential challenges this winter," according to the assessment. "The U.S. natural gas market is well supplied, with ample production and storage. Record-breaking production continues despite lower rig counts, increased exports, and the collapse of oil prices. New natural gas pipeline expansions and projects to reverse flows on some pipelines will also provide more transportation capacity from producing to market areas this winter, though no capacity additions have been made in New England."

The unusually powerful El Nino is likely to bring moderate winter temperatures to much of the East and much-needed precipitation to California, according to most forecasters (see Daily GPIOct. 13Oct. 7). The Farmer's Almanac is the contrarian, forecasting a "cold and snowy winter (see Daily GPI, Sept. 21).

"Winter weather forecasts indicate cooler than normal temperatures in the South, moderate weather in the Midwest, Pacific Northwest, and Northeast and uncertain temperatures in the Midcontinent and Mid-Atlantic," according to OE's report.

In a winter outlook released Thursday, the National Oceanic and Atmospheric Administration's (NOAA) Climate Prediction Center said this year's El Nino is one of the strongest on record.

"The driver of this year's winter outlook is El Nino, the strongest we've seen since the 1997-98 event, and arguably among the three strongest we've seen since 1950," said Mike Halpert, deputy director of the Climate Prediction Center. "El Nino is often a positive for the U.S., contributing to beneficial rains across the South and a milder-than-average winter in the North."

NOAA said it expects temperatures to average above average across much of the West and the northern half of the contiguous United States between December and February, and below average in the southern Plains and Southeast. Wetter-than-average conditions will be most likely in the nation's Southern tier, while drier-than-average conditions most likely for parts of the Pacific Northwest and northern Rockies, and for areas near the Great Lakes and Ohio Valley. Some improvement to drought conditions is likely in central and southern California by the end of January, but not drought removal, NOAA said.

Natural gas storage is poised to set a record entering the winter, OE said.

The 2015 natural gas storage refill season continues at a blinding clip, according to the Energy Information Administration (EIA), which reported Thursday that 100 Bcf was injected into underground stores for the week ending Oct. 9 (see related story). The build expanded the surplus to last year's level as well as the five-year average and put 2012's record storage level well within sight.

"Storage inventories began this year's injection season below the 5-year average. However, storage refilled quickly throughout the spring and summer, as strong production growth outpaced demand. As a result, natural gas inventories may reach 4 Tcf by the end of the injection season, which would be a record level," OE said. "Inventories are robust in all regions, and we expect the EIA producing region to set a new all-time high by the end of the month, while the East and West regions should be near previous records. In addition, Canadian storage is approaching the five-year average, and imports can quickly respond to meet high winter demand in the U.S."

In addition, propane storage at the wholesale level is filled far above the five-year range, and coal stockpiles are also at or above normal, OE said.

The forecasted warm temperatures should keep a lid on demand for natural gas this winter, especially in comparison with the previous two winters, which were marked by unusually high peak demand, OE said.

In its annual review of winter fuel supplies, EIA said earlier this month that the average U.S. household can expect a 10% decrease in natural gas expenditures this winter compared with last winter, based on a 4% decline in gas prices and more moderate average temperatures (see Daily GPIOct. 6). Even in the event of another cold winter, EIA does not expect natural gas inventories to fall below 1,000 Bcf by the end of the heating season. And the American Gas Association expects residential natural gas bills will be 5-7% lower this winter than last, thanks to robust production, high storage levels and increasing efficiencies (see Daily GPIOct. 9).

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