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WSI Forecast: East Will See Cold December, Warmer January

Temperatures across the eastern United States will average colder than normal in December but can be expected to become warmer than normal in January, according to forecaster WSI Corp. of Andover, MA.

"The current cold pattern in the northeastern U.S. should persist through at least the first half of December," said WSI seasonal forecaster Todd Crawford. "A temporary transition to a mild pattern should occur from January into early February, before the pattern reverts back to a much colder regime during the last weeks of winter. The current configuration of the very cold North Pacific ocean temperatures and wind patterns in the tropical Pacific should result in a cold winter in the Northwest and a warm winter in the Southeast. The Northeast will likely experience more subseasonal variability than other regions this winter."

In its Energycast Outlook for December WSI forecast colder-than-normal temperatures across the Northeast, Southeast and North Central (except Iowa and Nebraska) regions, and much colder-than-normal weather is expected in New York and New England. Warmer-than-normal temperatures will dominate the rest of the country (except Montana), with the warmest temperatures expected in Texas and New Mexico, according to WSI.

Energy Security Analysis Inc. (ESAI) said delivered natural gas prices as well as power prices are likely to get a boost from the early season cold weather, though fuel switching for power generation is also likely. The marginal reduction in natural gas demand may help to soften basis spikes associated with the colder-than-normal temperatures and, with fuel oil trading lower than natural gas, implied that on-peak market heat rates will be slightly lower than otherwise in the regions that have fuel-switching capabilities, ESAI said. The reduction in natural gas demand in areas forecast to be warmer than normal in December -- relatively sparsely populated areas west of the Mississippi -- is unlikely to offset the increases in the Northeast, and Henry Hub prices are likely to be slightly firm as a result, according to ESAI.

Warmer weather will move across the country in January, with warmer-than-normal temperatures expected across all of the eastern and central United States, while colder-than-normal temperatures will take over in the west, according to WSI. With relatively warmer weather taking over in key heating regions across the nation's northern tier, the demand for natural gas for power and heating in the consuming east will be significantly reduced, according to ESAI. It will also keep prices in check in January and keep withdrawal rates lower than normal.

"The rally that we expect to materialize from December's cold temperatures will likely evaporate with January's mild temperatures," ESAI said. "Electrical loads will be lower than normal in the northern states, a bearish development for power prices and implied on-peak market heat rates in New England, New York, and PJM. The same cannot be said of the area west of the Rockies, however. With colder-than-normal temperatures expected in the West (particularly the on the West Coast), western basis and power prices are likely to get a boost from the colder-than-normal temperatures and the higher-than-normal electrical loads."

By February colder-than-normal temperatures will have returned to the Northeast and North Central regions and will remain in place across the West, while warmer-than-normal temperatures will remain dominant in the Southeast and South Central regions, according to the WSI forecast. That would be bullish for natural gas prices, which are likely to have softened in January due to the mild weather, ESAI said. Colder-than-normal weather in the East will increase withdrawal rates from storage and help burn off some of the surplus to the five-year average, which is likely to have developed during the projected mild January weather. Electric loads in the Northeast will likely be higher in February, pushing gas and power prices higher. Assuming oil prices remain at currently levels, increases in implied on-peak market heat rates will likely be muted by fuel switching, according to ESAI, while power prices are likely to remain high in the Northwest and California on higher heating demand.

The WSI seasonal outlooks reference a standard 30-year norm (1971-2000). The next forecast, for January-March, is scheduled to be issued Dec. 16.

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