The Northeast, Great Lakes and Southwest areas of the United States will remain mostly warmer than normal over the next three months, continuing a trend that kept a lid on natural gas consumption and prices through most of the winter, according to forecasters at Andover, MA-based Weather Services International (WSI). But conditions may be ripe for a cooler-than-normal summer overall this year, WSI said.
“The combination of an emerging El Nino event, expectations for relatively muted levels of atmospheric blocking and cooler North Atlantic ocean temperatures all suggest a milder summer, especially in those areas of the southern U.S. that have been plagued by hot summers in recent years,” said WSI Chief Meteorologist Todd Crawford. “We are predicting that the year-over-year change in summer temperatures will be particularly noticeable in the ERCOT [Electric Reliability Council of Texas] power region, which suffered through a brutally hot and dry summer last year.
“We expect the warmest summer temperatures, relative to normal, to be found across parts of the north-central U.S. this summer. Finally, the oncoming El Nino event suggests that the warmest part of the summer is more likely to be early, with generally cooler temperatures later in the summer.”
May is expected to average warmer than normal in the Northeast, Southeast and Southwest (except coastal Southern California), and cooler than normal in the North Central (except North Dakota and Minnesota), South Central and Northwest, WSI said.
“While U.S. power prices in May are likely to be relatively low from a historic perspective — due to extraordinarily low gas prices — volatility is likely to be higher than normal (particularly east of the Mississippi), as warmer-than-normal temperatures and higher-than-normal electrical loads coincide with the end of the generation maintenance season,” said Energy Securities Analysis Inc.’s Chris Kostas, senior analyst. “Even though gas demand from the power sector is likely to run higher than normal, due to coal-to-gas switching, the extraordinarily mild winter has left natural gas inventories well above (i.e. 871 Bcf) last year’s level at this time.
“As a result, natural gas demand for storage injections this year will be much lower and will offset much of the increased demand from coal-to-gas switching this summer. Reduced storage injections and higher production rates should keep gas prices low this summer.”
Thanks to a warmer-than-usual winter and continuing strong unconventional development, gas storage is bulging at the seams. At the end of March, the official close of the winter heating season, working inventories totaled 2,479 Bcf, or 887 Bcf more than last year’s level and 934 Bcf above the five-year average, according to the Energy Information Administration’s (EIA) Short-Term Energy Outlook for April (see Daily GPI, April 11). In the last two decades, end-of-March inventories have not risen above 1,700 Bcf, and prior to that, rose above 2,100 Bcf only once, in 1983, EIA said. Given the current inventory state, the agency expects natural gas storage levels at the end of October to set a new record high as well.
June will bring warmer-than-normal temperatures to the central United States, while cooler-than-normal temperatures will dominate the Southeast (except California and Nevada), WSI said. The Northeast and Southwest will continue to see warmer-than-normal temperatures in June, the forecasters said.
“Low gas prices, overnight wind generation and low off-peak power prices driven by efficient gas plants could reduce coal-fired generation in the Midwest and Northern Illinois regions [in June],” Kostas said. “Lower coal-fired generation would create short periods of very high prices, depending on the duration of the heat. The same effect is likely to be seen in Texas, though the extent of the warmer-than-normal temperatures is expected to be lower there. New York and New England depend far less on coal-fired generation and should be affected to an even lesser extent. California, the Northwest and the Southeast will likely experience soft power pricing in June due to cooler-than-normal temperatures expected in those regions.”
WSI’s temperature forecast map remains mostly unchanged for July, though cooler-than-normal temperatures are expected to return to the South Central region.
“Mild July temperatures along the West Coast and in the South (extending to Texas), combined with the soft gas prices that we expect should keep power prices subdued in those regions,” Kostas said. “Coal-fired generators could find it difficult competing against gas-fired generators during the milder periods…Implied market heat-rates are expected to be very high throughout the summer, due to continued pressure on coal plants and coal-to-gas switching.
“While increased shale gas production has been beneficial in keeping power and gas prices subdued, the extraordinarily mild winter and the record inventory levels available at the beginning of this summer have accelerated the economic pressure on coal-fired plants and will likely increase power price volatility this summer.”
WSI is scheduled to issue its next seasonal outlook on May 22.
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