The U.S. 2011/2012 winter was the fourth warmest on record. NE energy end users who were exposed to the spot market were rewarded with very low prices. Nevertheless, the U.S. 2012/2013 winter was significantly colder despite being the twentieth warmest winter on record. Despite a mild winter start, last January had a large number of days below freezing and February was the fifth snowiest on record. Consequently, natural gas and electricity end users in NE who were exposed to index prices, found themselves facing significantly higher energy costs on the spot market. During these two months, unusually cold temperatures triggered price spikes due to forced plant outages, which caused reliability problems within the grid. To circumvent these issues, the entity responsible for maintaining electric reliability, the New England Independent System Operator (ISO-NE), was forced to dispatch higher cost power plants. The chart below shows historical monthly Real-Time prices across multiple Load Zones. Across these Load Zones, the average prices for the months of January 2013 and February 2013 were $83.54/MWh and $107.49/MWh. These prices were significantly higher than this period the previous year.
Besides an uneventful 2013 hurricane season, which “technically” ends on November 30, the natural gas injection season is also coming to an end. According to the Energy Information Administration (EIA) storage injection report released on November 7, 2013, natural gas inventories are 1.5% above the five-year average. The latest near-term weather forecasts suggest that the gap will increase during the next two or three weeks. In other words, according to the EIA, there should be sufficient natural gas in storage to meet the projected natural gas heating demand for the upcoming winter.
According to the National Oceanic and Atmospheric Association (NOAA), summer 2013 will be above average in West Texas and in the Mid-Atlantic states. The outlook both in terms of temperatures (left hand side) and projected rainfall (right hand side) is summarized in the following set of four maps, with the top maps being the outlook for June and the bottom ones the outlook for the entire summer (June-August).
According to the National Oceanic and Atmosphere Administration (NOAA), the 2013 Hurricane Season is predicted to be more active than normal. In its forecast released on May 23rd, NOAA anticipates 13-20 named storms, with 7-11 of those becoming hurricanes and 3 to 6 of those being Category 3 or higher hurricanes. The averages call for only 12 named storms, 6 hurricanes and only 3 of those becoming major storms. Given this outlook, the question becomes how will this impact natural gas prices?
Natural Gas Futures have been muted by the following factors due to Hurricane Isaac:
- Isaac had a hard time organizing, and it was upgraded to a CAT1 hurricane shortly before it made landfall.
- The last storm that disrupted natural gas and oil operations in the Gulf was Gustav (in 2008), and producers have made improvements to their facilities to better withstand severe weather conditions since then.
- Government data shows that 72% of U.S. Gulf natural gas output, or 3.2 billion cubic feet per day, was shut in as of Wednesday Aug 29. 2012.
- Gulf producers have reported little to no damage.
- Cumulative production loss of natural gas is under 17 Bcf since Monday Aug 25, 2012.
- Facilities are expected to be brought back on line quickly after inspections in coming days, if no damage is discovered.
- Inventory surplus is 14.6% higher compared to last year and 12.0% higher compared to the 5-year average for the same week.
- As Isaac makes its way inland, cooler temperatures and power outages resulting from the storm will offset much of the impact of the temporary supply loss.
Tropical Weather Outlook and Energy Management
After some choppy trading, Natural Gas futures are pulling back slightly. A shift in forecasts are calling for less intense temperatures for the first two weeks of August.