Continuing the above normal temperature theme from the beginning of winter, Andover MA-based WSI Corp. said Tuesday afternoon that it expects the January-March period to average warmer than normal across the northern two-thirds of the country with below normal temperatures confined to the southern tier of states. If the forecast holds up, lower natural gas and power prices are sure to follow, analysts say.
"The combination of cool North Pacific ocean temperatures and a moderate El Nino event in the tropical Pacific has resulted in weather patterns that are more typically associated with a strong El Nino event, with warm temperatures across all of the northern U.S.," said Dr. Todd Crawford, WSI's seasonal forecaster. "These patterns should generally continue for the remainder of the winter, but we think that the warmth will not be nearly as extreme as it has been in December."
Referencing a standard 30-year normal (1971-2000), the forecasting firm said it expects the United States to exhibit warmer than normal conditions in the West, the North Central region and the Northeast, while the Southeast and South Central portions of the country experience below normal readings, with Texas seeing especially cold temps.
According to analysis of WSI's January forecast conducted by Energy Security Analysis Inc. (ESAI), particularly mild temperatures in the North Central region is fairly bearish for natural gas prices because it is one of the major gas consuming areas.
"Following a warmer-than-normal December in much of the country, the mild outlook for most of the country is bearish for natural gas markets as inventories in storage are still well above five-year averages," ESAI said. "Lower demand in the North Central and Northeast regions for natural gas will be the primary drivers for the bearish outlook in January. In addition, the warmer January outlook should also result in lower average gas basis prices into key northern delivery points."
On the electricity front, ESAI said that power prices in the Northern regions during the month will be moderated as the chances for deep cold snaps decrease with WSI's forecast.
The temperature pattern in January is expected to mostly bleed through to February, with the entire West, the North Central region and the Northeast remaining warmer than normal, especially in Montana, New Jersey and Pennsylvania. The Southeast and South Central regions are expected to be cooler than normal, especially in Texas.
"Warmer temperatures in most regions -- particularly the North Central and Northeast regions -- will result in lower demand for natural gas from both the heating and power sectors," ESAI said. "Cooler temperatures in the southern regions will not provide a significant offset to lower demand in the northern regions. The continuation of mild temperatures in February should contribute to high end-of season natural gas inventories in April."
ESAI added that due to the expectation of moderated natural gas prices and warmer temperatures, power prices throughout the northern regions should also be moderate.
WSI said March is expected to be much like January and February with the exception of the Southwest, which is expected to register colder than normal conditions, except for California and Nevada, which is supposed to be warmer than normal. Florida and Texas are expected to be especially cold during the month while North Dakota and Minnesota record significantly warmer than normal temps.
"Cooler weather in the Southeast will have no significant impact on gas demand as a potential offset to lower demand in the northern regions," ESAI said. "If the mild January and February forecasts are realized, then the warmer March outlook will be very bearish for natural gas prices. Lower natural gas prices and lower loads with warmer temperatures will translate into lower power prices in most regions."
WSI said an update to the current forecast will be issued on Dec. 28 with the next new forecast package (for February-April) issued on Jan. 16.
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