Both natural gas and electric futures prices will climb this summer, reflecting exceptional gas burn and storage withdrawals during winter 2013-2014, and an ongoing drought in California could affect prices and operations there, according to FERC’s “Summer 2014 Energy Market and Reliability Assessment.”

Average natural gas futures prices for the summer months are generally higher than they were last year, according to the assessment, which is a joint effort of the Federal Energy Regulatory Commission’s Office of Enforcement and Office of Electric Reliability.

“Henry Hub summer futures averaged $4.81/MMBtu as of May 6, 84 cents higher than last summer,” according to the report. “The largest increases are in the West, where Southern California and Northern California are up 97 cents and $1.23, respectively, making them two of the most expensive points in the country. The higher prices there reflect expectations for high summer natural gas demand in California.

“Futures prices in New York City are about the same as last summer, but they remain 58 cents below the Henry Hub. The market expects few constraints into New York City this summer because of the NJ-NY Expansion Project put into service November 2013 [see Shale Daily, Nov. 1, 2013] and greater access to low-cost Marcellus Shale gas.”

Coal generation is likely to surpass gas-fired generation this summer, FERC said.

“Gas futures prices this summer are over $1/MMBtu higher than coal futures, compared to 41 cents higher last summer. In 2012, natural gas was 57 cents cheaper than coal, resulting in record natural gas-fired generation. Higher natural gas prices this summer should make natural gas-fired generation less competitive with coal, with gas burn projected to be 2.5% lower than last summer and 17% below the summer of 2012.”

Those same higher gas prices would provide the incentive to increase production 3% this year, FERC said.

“Moderate natural gas burn and higher production would help natural gas storage recover from the current low levels. 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.”

California’s natural gas and electric operations could experience elevated prices this summer as drought, hot weather and fire hazards take their toll on the market. The National Oceanic and Atmospheric Administration is forecasting warmer-than-normal temperatures for much of the state, which is turning to natural gas as a major drought and loss of a nuclear power plant put pressure on its electric grid (see Daily GPI,May 13).

“Low hydro conditions, gas storage replenishment, new gas-fired generation and forecasted warm weather are likely to lead to above-normal summer gas demand,” according to FERC’s assessment. “This could lead to pipeline congestion, particularly in Southern California, and high natural gas prices. This is already evident in summer forward prices. Increased solar generation may moderate the increase in gas demand.”

The National Weather Service (NWS) is forecasting above-normal temperatures along the Pacific coast, inland through the Southwest, and northward through the Great Basin and Pacific Northwest. NWS also expects above-normal temperatures in central Texas and along the Eastern Seaboard as far north as Maine.

“Offsetting this hot forecast, some forecasters are calling for a weak to moderate El Nino to develop by the summer,” FERC said. “This tends to inhibit tropical storm development, and generally results in wet and cool summers in the central and eastern U.S. A strong El Nino may result in cooler and wetter weather across the country.”

The early consensus for the 2014 Atlantic hurricane season is for below-normal tropical activity. this week said it expects 10 named storms, including five hurricanes, two of them major (Category 3 or higher), to form in the Atlantic Basin after the hurricane season begins on June 1 (see related story). Tropical development could be altered by the onset of an El Nino event — the warming of water temperatures in the central and equatorial Pacific Ocean — the forecaster said.

Forecasters at Colorado State University (CSU) said in their first tropical forecast of the year that they too expect an El Nino event to limit the number of hurricanes that form in the Atlantic Basin (see Daily GPI, April 11). The CSU team is expecting nine tropical storms in the Atlantic Basin this year, including three hurricanes, one of them major (Category 3 or higher). That is comparable to a forecast from Houston-based ImpactWeather that called for 10 tropical storms, including four hurricanes, one of them major (see Daily GPI, March 25).

The North American Electric Reliability Corp. (NERC) this week said that there should be enough power to go around this summer, though Texas could be squeezed if peak demand hits sooner than anticipated new generating capacity comes online (see Daily GPI, May 14). Also, as natural gas accounts for a larger portion of generating capacity across power grids, systems are having to adjust, NERC said.

While NERC’s “2014 Summer Reliability Assessment” found that peak demand forecasts have remained flat from last year, it remains concerned with the ongoing resource mix changes, the changing operational characteristics of resources, and the continued retirement of generation across the bulk power system.