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WSI Expects East Cool-Off to Begin in August

Summer will end with cooler-than-normal temperatures dominating the East, a trend that is expected to carry over through October, but high temperatures will keep their grip on the central United States, according to forecasters at Andover, MA-based Weather Services International (WSI). And despite nearly a month passing since the last tropical storm activity, WSI said more named storms than previously forecast are likely to form in the Atlantic Basin this year.

"This summer has been characterized by extreme heat and drought across much of the central U.S. and, unfortunately, there does not appear to be any immediate end in sight as we head into August," said WSI Chief Meteorologist Todd Crawford. "While the major cities of the eastern U.S. will experience more moderate summer temperatures in August, the Plains and Midwest will continue to suffer through hot, dry weather."

WSI's U.S. Energycast Forecast for August calls for cooler-than-normal temperatures in the East and Northwest (especially coastal areas), with warmer-than-normal temperatures expected in the Central (except southwest Texas) and Southwest (except coastal Southern California) areas.

"With cooler-than-normal temperatures expected along the East Coast in August, natural gas prices could see some late-summer price weakness, as gas inventories begin to approach last year's record level by the end of the month," said Energy Securities Analysis Inc.'s Chris Kostas, a senior analyst. "Usually, below-normal summer loads translate into lower implied market heat rates. However, this year, against the backdrop of very low gas prices and increased coal-to-gas switching, implied market heat rates could be firm.

"Coal-fired generators continue to struggle against efficient gas-fired plants and below-normal loads (particularly in PJM, New York and New England). In August we expect implied market heat rates will be steady but firm, due to below-normal cooling load and soft delivered gas prices in those regions." The Midwest Independent System Operator and Electric Reliability Council of Texas could see implied market heat-rate volatility and California power prices "are likely to remain relatively soft in August, due to mild temperatures, soft loads and low gas prices," Kostas said.

Warmer-than-normal temperatures are expected to move into the Southeast in September, while the North Central and Southwest areas will average cooler than normal, WSI said.

"Gas prices could soften further during the month as inventories approach last year's record level (i.e., 3,854 Bcf) and begin to approach 4,000 Bcf," Kostas said. "While we don't expect inventories to challenge 4,000 Bcf until October, we do expect gas price softness well before that level."

The Energy Information Administration (EIA) last week reported a build of 26 Bcf. Total Lower 48 storage stood at 3,189 Bcf, up 487 Bcf from a year ago and 435 Bcf more than the five-year average, according to EIA's Weekly Natural Gas Storage Report. EIA has said it expects that inventory levels at the end of October will set a new record high at 4,096 Bcf.

Cooler-than-average temperatures will return to the Southeast in October and the North Central area will see a return of warmer-than-normal temperatures (except in southern and central Texas), according to WSI.

"A mixed weather outlook in October may help to depress power prices throughout the country," Kostas said. "This is due to the softer delivered gas prices related to the record gas inventories that we expect."

The WSI forecast team now expects 13 named storms to form in the Atlantic Basin this year, including six hurricanes, three of them major (Category 3 or higher), up from its previous 12/six/three forecast (see NGI, July 2) and its initial 11/six/two forecast, which was issued prior to the official start of the hurricane season (see NGI, May 28).

If WSI's latest forecast numbers are accurate, the 2012 Atlantic hurricane season would nearly match the 1950-2011 average of 12 named storms, seven hurricanes and three major hurricanes and would come in under the 1995-2011 average of 15/eight/four, but it would produce significantly less tropical activity than was observed in 2010 or 2011.

"Although we got off to a fast start in 2012, we feel that the heart of the season will be much less active than the last two as an El Nino event continues to mature slowly and provide an unfavorable environment for tropical development," Crawford said. "However, the combination of a fast start and the recent increase in North Atlantic surface temperature anomalies over the last month dictate that we make another small increase to our forecast numbers. Further, the slow emergence of El Nino impacts as summer transitions into fall typically means that the bulk of the activity occurs during August-September, with a fairly quiet back half of the season."

The Atlantic hurricane season, which officially runs from June 1 to Nov. 30, got off to an early start this year with the formation of Tropical Storms Alberto and Beryl in May. The season's third named system, Chris, formed southeast of the Canadian Maritimes June 19 and, despite becoming the season's first hurricane for a few hours on June 21, never threatened the North American mainland. Debby, the fourth named storm of the 2012 season, formed near the Yucatan peninsula June 23, forcing offshore GOM oil and gas operators to evacuate workers from platforms and shut in production temporarily.

There is no particularly strong North American landfall signal for hurricanes this year, Crawford said. "The landfall of Irene in 2011 was the first hurricane landfall in three years, which, in the context of the historical record, is an unusually long lull," he said. "For 2012, the current forecast from our landfall model depicts slightly below-normal probabilities of landfall from Florida and up the East Coast, with slightly above-normal probabilities in the Gulf."

The consensus forecast this year has been that the hurricane season is likely to produce fewer tropical storms than seen during the last few years.

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