February is likely to be colder than normal in the Northeast and much of the rest of the country, but warmer-than-normal temperatures are expected to dominate in March and April, according to forecasters at Andover, MA-based Weather Services International (WSI).
“The first half of winter has been quite mild across the eastern half of the U.S., while the western U.S. has suffered through a cold winter so far,” said WSI Chief Meteorologist Todd Crawford. “However, the pattern has recently changed to allow much colder temperatures to plague the eastern U.S. for much of the back half of winter. A significantly weakened polar vortex will allow bitterly cold Arctic air to spread southward across the north-central and much of the eastern U.S. during February.
“By March, however, most of the objective forecasting guidance suggests that above-normal temperatures will return to the eastern U.S., likely persisting through much of the spring. The impacts from the multi-year drought across the Plains will also likely favor an early emergence of spring across much of the central and eastern U.S., especially if the remainder of winter is fairly dry in these regions as we currently expect.”
Temperatures next month are expected to average colder than normal across the country, except in Texas and the Southwest.
“In February, colder-than-normal temperatures and above-average heating demand in the Midwest, Northeast, and Mid-Atlantic regions will boost aggregate North American natural gas demand and will help to support gas prices,” said Energy Securities Analysis Inc. (ESAI) Senior Analyst Chris Kostas. “The below-normal temperatures in these key gas demand regions will more than offset the below-normal heating demand associated with mild temperatures in the Southwest and California.
“Typically, Mid-Atlantic gas basis prices would surge under these circumstances, but with new shale gas supplies growing steadily in Pennsylvania, Tetco M3 gas prices should only experience modest price strength relative to Henry Hub during the month. The above-normal aggregate heating demand should help to rebalance inventories and which began the winter heating season at a record high level.”
Working gas in underground storage stood at 3,168 Bcf for the week ending Jan. 11, according to the Energy Information Administration’s Weekly Gas Storage Report, down 148 Bcf from the prior week and 147 Bcf lower than a year ago, but still 316 Bcf (11.1%) more than the five-year average.
Colder-than normal temperatures in the Midwest may increase gas and power demand in the region, but “the upside to gas prices may be limited,” Kostas said.
“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 marginally. As coal-fired generators increase output levels during the coldest days their increased generation should begin to relieve the need for gas for power generation. This should act as a soft ceiling for power and gas prices in the Midwest (i.e. PJM and MISO).
“In New England and parts of New York, however, gas and power prices are likely to experience higher price volatility and sharp price increases in February due to pipeline constraints during the coldest days. Power and gas prices in Texas and California are expected to be soft due in February due to lower weather-related demand in those regions.”
By March, WSI expects warmer-than-normal temperatures to have moved across most of the country, with only the Northwest and coastal California forecast to average colder than normal. And WSI’s temperature forecast map remains unchanged through April.
Demand for natural gas is likely to finish the winter heating season at a “soft and stable” level, Kostas said.
“With natural gas production expected to remain strong through the winter, a mild March could easily leave natural gas inventories above 2,000 Bcf again this year,” he said. “ESAI is currently forecasting an end-of-season inventory level of 2,150 Bcf, which is moderately higher than market consensus…[W]ith gas demand low in March and April and robust inventories expected to begin the injection season, we believe natural gas prices are likely to be soft and stable in April. Henry Hub gas price volatility is likely to be relatively low in April as well, while implied market heat rates are likely to firm as generation maintenance increases throughout the month.”
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 Daily GPI, Oct. 11). Winter was unseasonably warm last year, resulting in little additional demand and weak prices.
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