Winter weather could compound low gas storage problems

If your favorite natural gas forecaster is spending more time outside sniffing the air and placing a moistened index finger over his/her head, don’t be alarmed. While winter in calendar terms is still more than a month away, all the major weather forecasters have made their isobar-filled, high and low pressured, El Nino/El Nina-influenced prognostications for winter season 2018-19. But this year, which way the thermometer goes, coupled with nuclear power plant outages, and generally higher power demand throughout the U.S. economy, could lead to much higher gas prices and, worst-case scenario, possible spot product shortages. Take a look at the stored working gas numbers put out weekly by the Energy Information Administration, the statistical arm of the Department of Energy. Looking back from the week ending Nov. 9 (EIA’s most recent data), the difference between the week being compared to the five-year average for stored working gas, was negative 58 straight weeks. In other words, for 58 consecutive weeks dating back to late September 2017, the week moving forward was down compared to the five-year average. Digging a bit deeper, for the most recent 45 weeks, the percentage difference between the week being compared to the five-year-average was down by double digits, Kallanish Energy calculates. Supplies of natural gas were depleted by a cooler-than-normal 2017-18 winter and a warmer-than-normal summer of 2018, experts say. By late April, less than a month after the official March end of the heating season, stocks had fallen below 1.3 trillion cubic feet (Tcf) — the lowest in four years, according to EIA data. While stored gas is down substantially, the price for gas is up – and up substantially. Natural gas prices have in recent weeks soared over the $4 per thousand cubic feet level for the first time since prices jumped to the $7/Mcf level for a short time this past January, according to Michael Lynch, president of Strategic Energy and Economic Research, in a recent blog posting.

The natural gas price at 11:30 p.m. Monday was $4.52/Mcf.

“The tighter inventory situation can be explained primarily by the sudden surge in LNG exports,” according to Lynch. “Although they constitute only one-third of total exports (which also include pipeline exports to Canada and Mexico), they have increased sharply in the past two years as new export terminals have come online and oil prices have made them attractive.” Some experts believe the U.S. is on the edge when it comes to stored working gas – despite natural gas producers setting production records virtually weekly. Could demand overtake supply, causing shortages? “If winter weather comes in mild, then this current storage shortfall is a speed bump on the way to a looser market in 2019. If cold weather comes to fruition, though, the tenor of the 2019 outlook is fundamentally changed, and the market will spend a good portion of next year just digging out of the storage deficit,” Michael Cohen, head of energy markets research at Barclays, wrote in an October research note. While low inventories provide a bearish backdrop, it’s largely the unseasonably warm weather much of the U.S. experienced into October and unplanned nuclear power outages that are to blame for high gas prices, some experts contend. Days warm enough to require air-conditioning were 20% higher in September than the 10-year average, according to Barclays. In addition, Hurricane Florence forced power plants in North and South Carolina to shut down as much as 17,000 megawatts of nuclear power, or roughly 10,000 MW more than usual over the last four years, according to Barclays. As mentioned previously, weather prognosticators in mid-October made their winter forecasts. AccuWeather believes the return of an El Niño weather pattern will have a significant influence on the winter season. Mild air will linger in the Northeast and mid-Atlantic before cold weather takes hold in January and February. An active southern storm track will send snow and ice to parts of the southern Plains this winter, the State College, Pennsylvania-based company believes. El Niño means “The Little Boy,” or “Christ Child” in Spanish. El Niño was originally recognized by fishermen off the coast of South America in the 1600s, with the appearance of unusually warm water in the Pacific Ocean. The term El Niño refers to the large-scale ocean-atmosphere climate interaction linked to a periodic warming in sea surface temperatures across the central and east-central Equatorial Pacific. Typical El Niño effects are likely to develop over North America during the upcoming winter season. Those include warmer-than-average temperatures over western and central Canada, and over the western and northern United States. Wetter-than-average conditions are likely over portions of the U.S. Gulf Coast and Florida, while drier-than-average conditions can be expected in the Ohio Valley and the Pacific Northwest. “New York City and Philadelphia may wind up 4 to 8 degrees colder this February compared to last February,” AccuWeather forecaster Paul Pastelok said. In the Mid-Atlantic states, a few big snowstorms are likely. Most of the action will dodge the far Northeast U.S., however. In the Great Lakes, lake-effect snow will be less frequent than normal, despite above-normal water temperatures. An uptick is possible in late winter, but, for the season as a whole, residents will receive less than they are accustomed to, AccuWeather forecasts. If major metropolitan areas in the Northeast are smacked with colder-than-normal temperatires and a few big snowstorms, natural gas usage will jump. And so will gas prices. It may be time to go outside, wet that index finger and look to the west.

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