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WSI Sees Summer Cool, Fall Warmth Pressuring Gas Prices

Temperatures in the Northeast will average cooler than normal next month, but the East and West can expect warmer-than-normal weather to dominate in September and October, according to forecasters at Weather Services International (WSI). For much of that time, below-normal temperatures are expected to be prevalent from the northern and central Rockies, eastward through the Great Lakes and Ohio Valley.

The moderate weather is expected to high particularly hard at Appalachian prices, WSI said.

"After a moderately warm June, July has turned sharply cooler, especially across the central U.S.," said WSI Chief Meteorologist Todd Crawford. "This trend towards cooler temperatures as the summer progresses is common during emerging El Nino events as the atmosphere becomes more supportive of the increased west Pacific tropical activity that often forces cooler Canadian air masses southward into parts of the central and eastern U.S.

August should average cooler than normal in both the Northeast and North Central regions, with warmer-than-normal temperatures expected across the rest of the country, according to WSI. Cooler-than-normal temperatures centered over PJM and Midwest-ISO territories should soften power prices and implied market heat-rates, while warmer air in Texas should help firm ERCOT power prices, according to Energy Securities Analysis Inc. Senior Analyst Chris Kostas.

"Northeast natural gas prices (i.e., Marcellus Shale gas region) should continue to run very soft compared to Henry Hub due to below normal regional temperatures and increased production," Kostas said. "Reduced weather-related demand should also allow natural gas inventories to refill rapidly in August and decrease the deficit to last year's level."

Warmer-than-normal temperatures will dominate in the Northeast and across all of the country except the North Central area as Autumn approaches, according to the WSI forecasters.

"In September, mild Midwest temperatures should continue to pressure natural gas prices lower, particularly in eastern Pennsylvania, where increased production and pipeline constraints are causing wide price spreads to Henry Hub this year," Kostas said. "Above-normal natural gas injection rates are likely to continue in September. Natural gas inventories have exceeded last year's injection rate by 2.3 Bcf/d through the first half of the injection season. With relatively mild temperatures expected in August and September, we expect this figure to increase during the second half of the injection season. Warmer-than-normal temperatures in the South and cooler-than-normal temperatures in the Midwest should also help keep Henry Hub prices firm relative to Marcellus price points."

WSI's October temperature map shows a clear delineation, with the East and West both averaging warmer than normal, while cooler-than-normal weather is expected throughout the Central portion of the country.

"Energy demand is expected to soften considerably in October due to moderating seasonal temperatures," Kostas said. "Soft energy demand in the Northeast and Marcellus Shale gas regions should continue to pressure delivered natural gas prices lower and help natural gas inventories finish the injection season very strong."

Last week, the Energy Information Administration reported natural gas inventories at 2,129 Bcf, 608 Bcf less than last year and 727 Bcf below the five-year average (see Daily GPIJuly 17). The agency has estimated that working stocks at the end of October will reach only 3.43 Tcf, 380 Bcf lower than at the same time last year (see Daily GPIJuly 9). Kostas is more optimistic about the build.

"As a result of the relatively mild temperatures expected over the next three months, we are forecasting North America inventory levels will finish the injection season above 3,700 Bcf (and not far off last year's adjusted level of 3,809 Bcf)," Kostas said.

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