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Summer Months to be Mostly Warmer Than Normal, WSI Says

Temperatures across much of the United States will average above normal this summer, though slightly cooler-than-normal temperatures are expected across the Southeast and Pacific Coast, according to forecasters at Andover, MA-based Weather Services International (WSI). Despite the warmer-than-normal forecast for most regions, ample natural gas supplies thanks to a mild winter will likely keep natural gas prices depressed, analysts say.

The heat is likely to be concentrated from the Southwest to the Northern Plains, but the Northeast can also expect warmer-than-normal temperatures in June and July before a cooling trend in August, WSI said.

"As we head into summer, it may appear that the prolonged stretch of above-normal temperatures across the U.S. will never end," said WSI Chief Meteorologist Todd Crawford. "However, although we are expecting a continuation of the warmth across a majority of the country during the first half of summer, the emerging El Nino would suggest increasing odds of more widespread, below-normal temperatures later in the summer; and our August forecast reflects that.

"The big story for the summer, however, is the expected reversal of the summer pattern from recent years that favored very hot temperatures across the South Central and Southeastern U.S. This pattern was driven by the extreme levels of North Atlantic atmospheric blocking that we've seen during the past four summers. There are no indications that these levels of blocking will occur again this summer, so those in the South should expect a much cooler summer this year."

WSI's forecast calls for temperatures to average warmer than normal in June in the Northeast, Central and Southwest (except coastal southern California).

"Warmer-than-normal June temperatures in Midwest ISO (MISO) and western PJM could create a volatile situation for power prices in those regions, as summer power demand begins to kick in and drive afternoon cooling loads higher," said Energy Securities Analysis Inc.'s Chris Kostas, senior analyst. "Low gas prices and overnight wind generation could also help to squeeze coal plants in those regions. This would support higher on-peak implied market heat rates in Northern Illinois and MISO. Lower coal-fired generation could also create short periods of high power prices in PJM-East, NY, and New England, due to the slightly warmer-than-normal temperatures that are expected in those regions. Firm on-peak implied market heat rates could also be seen in Texas (i.e. ERCOT) in June, though the warmer-than-normal temperatures are expected to be less pronounced there. California and the Northwest, on the other hand, could see very low power prices and implied market heat rates, due to the expected higher-than-normal Columbia River run-off (i.e. above-normal hydro generation) and the low gas price environment. The Southeast will also likely experience soft power pricing in June due to low gas prices and cooler-than-normal temperatures."

WSI's forecast for July is much the same, though the South Central area is expected to be cooler than normal. The Southwest will again be warmer than normal, except California and Nevada.

"Mild July temperatures along the West Coast and in the South (extending to Texas) combined with the expected soft gas prices should keep power prices subdued in those regions," Kostas said.

California and the Northwest will benefit from higher-than-normal Columbia River runoff and a resulting surge in hydro generation, and softer-than-normal loads in Texas and the South are likely to place added pressure on coal-fired generators, Kostas said.

"Implied market heat rates are expected to be very high throughout the summer (east of the Mississippi) due to the continued pressure on coal plants and coal-to-gas switching. While increased shale gas production has been beneficial in keeping power and gas prices subdued; the extraordinarily mild winter and the record seasonal inventories have accelerated the economic pressure on coal-fired plants and will likely keep power prices volatile this summer."

Record-high natural gas working inventories, which are bulging after mild temperatures held down demand through the winter, recently prompted the Energy Information Administration (EIA) to once again revise downward its projection for natural gas prices this year (see Daily GPI, May 9). In its Short-Term Energy Outlook for May the agency said it expects gas prices to average $2.45/MMBtu this year. That's down from its April projection of $2.51/MMBtu for the year (see Daily GPI, April 11) and a 72 cent/MMBtu (23%) decrease from its March projection of $3.17/MMBtu (see Daily GPI, March 12).

April ended with an estimated 2.61 Tcf in storage, about 46% more than the same time last year. For the week ending April 27, working inventories totaled 2,576 Bcf, according to EIA's Weekly Natural Gas Storage Report, an 840 Bcf increase compared to last year and 857 Bcf above the 2007-2011 average. EIA said it expects that inventory levels at the end of October will set a new record high at 4,096 Bcf, "although the record will largely be due to high levels already present at the start of the injection season."

The Northeast is expected to see cooler-than-normal temperatures in August, as will the Southeast and North Central areas. The West (except coastal California) and the South Central region are likely to be warmer than normal, WSI said.

"With cooler-than-normal temperatures expected across the Midwest and MidAtlantic regions in August, natural gas prices could see early autumn price weakness; as gas inventories approach last year's record level," Kostas said. "Below-normal summer loads usually translate into lower implied market heat rates. But against the backdrop of low gas prices this year, implied market heat rates could be firm, if coal-fired generators continue to struggle against efficient gas-fired plants. We expect implied market heat rates will be firm in MISO, PJM and the Northeast due to soft gas prices and below-normal cooling load."

WSI is scheduled to issue its next seasonal outlook on June 26.

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