Separating the country along mostly North-South lines, WSI Corp. said in its latest outlook that it expects the December-through-February period to average cooler-than-normal across the northern tier of states and along the Pacific Coast with warmer-than-normal temperatures in most southern areas.
Referencing a standard 30-year normal (1971-2000), the Andover, MA-based weather forecasting firm's seasonal outlook appears to be milder than some other recent private forecasts. If WSI's forecast is realized, the hobbled natural gas supply industry could have an easier time meeting demand this winter.
"The strong ocean temperature signal in the Pacific Ocean suggests a warm winter across most of the southern U.S.," said Todd Crawford, WSI seasonal forecaster. "The tougher question is how far north these above-normal temperatures will extend. We currently feel that below-normal temperatures will be confined to the northern tier of states this winter, along with the Pacific Coast cities."
In its monthly breakdown, WSI said December will likely be warmer than normal in the entire East, South Central and Southwest regions of the U.S., except for California. The North Central and Northwest states are likely to be cooler than normal, except for Nebraska, Iowa, Washington and Oregon.
Analyzing WSI's forecast for the month, Energy Security Analysis Inc. (ESAI) said cooler than normal temperatures in most of the North Central region will increase natural gas demand for heating in these areas. "This increase in demand will be largely offset by lower demand in the Northeast," the Wakefield, MA-based consulting firm said. "By December, it is likely that 2.5-3.0 Bcf/d of Gulf production will still be shut-in. The warmer weather over most parts of the U.S. in December will help to ease early winter concerns in a market that is very nervous and volatile."
ESAI noted that if early season draws from storage are lower than normal, fears of shortages will soon subside, which will dampen upside volatility in gas prices. The company added that demand for electricity will tend to be lower under the warmer outlook, which will result in moderate prices, particularly in the eastern and southern markets.
Surprisingly enough, WSI's January forecast calls for the warmer than normal areas to expand. In addition to the entire East and Central portions of the country, the Southwest -- except California and Nevada -- are expected to exhibit warmer than normal temps. The Northwest will likely be cooler than normal.
ESAI said the warmer than normal conditions in the Northeast in January will reduce the potential for local gas pipeline delivery congestion, which normally is a threat when there are cold Januarys in the region. "Severe cold weather tends to take a toll on generator operations in the form of higher levels of forced outages and the warmer outlook reduces the potential for generator outages," ESAI said. "The warmer January outlook is bearish for eventual actual power prices relative to the current high prices for January deliveries in the forward energy markets."
The warming trend still hangs on in February according to WSI's forecast. During the month, the forecasting firm predicts that the Southeast, South Central and West will be warmer than normal, with the exceptions of Idaho and Montana. The Northeast and North Central regions will likely be cooler than normal, with the exceptions of Pennsylvania and New Jersey.
ESAI said the cooler weather will increase heating demand in the key Northeast and North Central regions, which will be bullish for natural gas prices. However, the company noted that if the warmer weather materializes in December and January, the market will be less concerned about natural gas supply issues as inventories should be above average in February.
"The chance of extreme cold disrupting local supplies in the Northeast does still exist with a higher likelihood under this colder forecast," ESAI warned. "Higher delivery costs for gas in the Northeast areas will have a bullish impact on power prices in February in addition to the potential for higher demand loads."
More information about WSI and its forecasts can be found at www.wsi.com.
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