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Mild Summer 2014 Could Bring Weakest Cooling Demand Since 2009, WSI Says

Temperatures are expected to average below normal this summer from the Rockies east to the Mid-Atlantic and Southeast United States, according to forecasters at Weather Services International (WSI), a prognostication that could lead to the weakest nationwide cooling demand since 2009.

"It is now clear that an El Nino event is emerging, although the chances of a very strong event (e.g., 1997) now appear relatively small," said WSI Chief Meteorologist Todd Crawford. "The forcing from the developing El Nino should result in a higher-than-normal frequency of cool Canadian air masses this summer across much of the northern and eastern U.S., confining the big heat to the western U.S. and potentially parts of the southern Plains.

"While we are expecting above-normal temperatures across Texas this summer, the magnitude of the heat will likely be modulated by the amount of rainfall that occurs during the next few weeks. More frequent late-spring rains will likely increase the odds of only slightly above-normal aggregate summer temperatures there, while a return to a drier pattern during the next few weeks will increase the odds of more notable heat."

WSI expects temperatures in June to average cooler than normal in the Mid-Atlantic, Southeast and North Central United States. That would moderate energy prices in PJM Interconnection's footprint while boosting prices in California, according to Energy Securities Analysis Inc. (ESAI) Senior Analyst Chris Kostas.

"With below-normal cooling demand expected in the consuming East, PJM natural gas prices should run at a significant discount to Henry Hub (particularly on the cooler days). Offsetting some of this price weakness, however, should be increased natural gas injection demand; which ESAI expects will run about 4 Bcf/d above last year," Kostas said.

By July, cooler-than-normal temperatures will dominate across all of the country except the Northwest and South Central areas, WSI said.

"Aggregate North American cooling demand is expected to run below normal, resulting in soft energy prices, particularly in the Northeast markets," Kostas said. "Large price discounts to Henry Hub can be expected in PJM and New York this summer, particularly on cooler days. Robust natural gas injections should help to offset some of this price weakness and allow storage levels to improve relative to last year, however. In Texas and California, above-normal temperatures should help to support power prices. Increased energy demand in Texas could also help to support Henry Hub prices relative to the shale production region of Pennsylvania."

Northern New England and the Southeast may see some warmer weather in August, but much of the Northeast, the North Central and the Southwest will continue to average cooler than normal in the final full month of summer, according to the WSI forecast.

"Natural gas prices in the Mid-Atlantic region should be soft relative to Henry Hub due to lower electrical loads," Kostas said. "Reduced aggregate cooling demand and lower electrical loads should also allow natural gas inventories to reduce the deficit to last year's level."

The Energy Information Administration on Thursday reported natural gas inventories at 1,160 Bcf, 790 Bcf less than last year and 959 Bcf below the five-year average (see Daily GPI, May 15).

A Federal Energy Regulatory Commission report released Thursday indicated that rising natural gas prices this summer could provide the incentive to increase production 3% this year and help fill that empty storage space (see Daily GPI, May 15). "Moderate natural gas burn and higher production would help natural gas storage recover from the current low levels," FERC said. "However, summer natural gas-fired generation increasingly competes with storage injections for supply, and utilities may face some natural gas delivery constraints as LDCs [local distribution companies] and pipelines begin to refill storage."

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