The next three months will average colder than normal across much of the northern United States, with arctic air expected to be a "frequent guest in [the] largest gas-demand population centers," said forecasters at Andover, MA-based Weather Services International (WSI).
"After another unusually warm December across much of the U.S., the pattern is now transitioning to a more normal winter look," said WSI Chief Meteorologist Todd Crawford. "An atmospheric blocking event is developing at very high latitudes north of Alaska, which will allow for very cold air to move southward into southern Canada and parts of the northern U.S. However, the southward extent of the cold air will be limited, as a very strong westerly subtropical jet stream will keep parts of the southern U.S. quite mild."
WSI's forecast for January calls for colder-than-normal temperatures across the nation's northern tier (except northern New England), with warmer-than-normal temperatures expected to dominate the rest of the country.
"The cooler northern temperatures and above-normal heating demand in the North Central and Northeast regions should partially offset the reduced demand of the South," said Energy Securities Analysis Inc. Senior Analyst Chris Kostas. "While natural gas prices are likely to firm during the coldest periods, robust supplies (i.e., high inventory levels and strong Marcellus production) should limit price strength in both magnitude and duration.
"New England and portions of northern New York may experience very sharp price spikes in January due to pipeline congestion on Tennessee Gas and Algonquin pipelines. This congestion is due to the secular decline of Canadian imports and increased dependency of gas for heating and power. Indications are that the futures market has priced-in these effects, with gas basis prices trading below the five-year average in the Mid-Atlantic (i.e., Tetco M3), but well above the five-year average in New England (i.e., Algonquin Citygates). Power prices at Mass Hub are expected to be firm, while expectations at PJM Western Hubare much more modest. Soft power and gas prices are also expected in Texas, California and the Midwest due to the mild January temperatures expected in those regions."
ISO New England Inc. (ISO-NE) recently reported that New England's reliance on natural gas to fuel power generators "could create operational challenges if natural gas supplies become tight this winter," which would force the region to turn to oil- coal-fired generation "to lessen any operational risks" to the power system (see NGI, Dec. 10). The grid operator said in its winter forecast that it expects to have sufficient capacity to meet the region's demand for electricity, but it is concerned about New England's reliance on natural gas. ISO-NE recently asked the Federal Energy Regulatory Commission to install interim rules for real-time communication with pipelines to help New England power producers get through the winter (see NGI, Nov. 19).
WSI expects temperatures in the Northwest to average warmer than normal in February, but colder-than-normal temperatures will continue to dominate the Northeast and North Central areas, the forecaster said.
"Colder-than-normal temperatures and above-average heating demand in the Midwest and Northeast should give a boost to aggregate North American gas demand and help to support prices in February," Kostas said. "The increase in gas demand in these key demand regions should more than offset the below-normal heating demand expected in the South and West. Typically, Mid-Atlantic gas basis prices would surge under these circumstances. But with new shale gas supplies in Pennsylvania, Tetco M3 gas prices should only experience modest price strength, relative to Henry Hub.
"The above-normal aggregate heating demand should help to rebalance inventories and gas prices (which finished last winter at record high and low levels, respectively). While the colder-than-normal temperatures expected in the Midwest will increase power and gas demand in the region, the upside may be limited. Coal-fired generation that has been sidelined due to poor economics should find some breathing room to increase run rates in February, as gas demand for power competes with demand for heating and strengthens gas prices. However, increased coal-fired generation would work to limit upside price risk for both the power and gas markets," Kostas noted.
The Energy Information Administration (EIA) reported 3,652 Bcf of working gas in underground storage for the week ending Dec. 21, a 12.8% increase compared with the 3,239 five-year average for the same week.
By March, WSI expects warmer-than-normal temperatures to have settled into almost the entire Lower 48, with only the Northwest forecast to experience colder-than-normal weather.
"With natural gas production expected to remain strong, a mild March could easily leave natural gas inventories above 2,000 Bcf again this year," Kostas said. "Soft heating demand and below-normal electrical loads in March increase the downside risk profile for power and gas prices in ERCOT [Electric Reliability Council of Texas], MISO [Midwest Independent Transmission System Operator], PJM, New York and New England. However, implied market heat rates could firm in some of these regions due to marginal coal units being priced-out of the market due to poor economics."
A continuation of the drought that began over the summer in the nation's midsection could help keep temperatures in the region low this winter, and has the potential to trigger a repeat of 2010-2011's wellhead freeze-offs, according to a 2012-13 Winter Outlook recently released by Earth Networks-WeatherBug (see NGI, Nov. 19). WeatherBug expects temperatures through February to average about normal for most of the eastern United States, including all of the Northeast population centers.
Like WSI, WeatherBug said it expects the Northern Plains, Northern Rockies and Washington state will experience temperatures averaging below normal throughout the winter months, but WeatherBug said the Great Lakes should see above-normal temperatures through January, with more moderate temperatures taking over after that.
The National Oceanic and Atmospheric Administration (NOAA) cited El Nino's retreat in its forecast of warmer-than-average temperatures across an area stretching from Arkansas west through Arizona and north as far as the Canadian border (see NGI, Oct. 22). Most of the rest of the United States can expect temperatures to average about normal from December through February, NOAA said.
EIA has said it expects U.S. households, one-half of which use natural gas as their primary heating fuel, to spend an average of $89 more this winter, reflecting a 1% increase in the average residential price from last winter and a 14% hike in consumption if near-normal (cold) temperatures materialize for the upcoming winter (see NGI, Oct. 15). Winter was unseasonably warm last year, resulting in little additional demand and weak prices.
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