Weather, Electricity Prices, & You: the Winter 2015 Natural Gas Update

By Vernon Trollinger, February 2, 2015, Energy Efficiency, News

Weather, Electricity Prices, & You: the Winter 2015 Natural Gas Update

Buried Natural Gas Line image courtesy of snowbear at morguefile.com

More states rely on natural gas powered generators than ever before. Texas uses the fuel for more than half its generation, while the Northeast United States is 95% powered by natural gas. Understanding what’s happening in the natural gas industry can help you figure out what to expect with your electricity rates so you can possibly save money.

Falling into Winter

Natural gas consumption during last winter’s record cold caused higher wholesale electricity prices throughout most of the country. Storage amounts by April 2014 were at record lows, and investors were nervous about the amount of natural gas burned during Summer 2014. However, comparatively lower summer peak loads and lack of major hurricane interruptions in the Gulf of Mexico facilitated low natural gas demand and record natural gas production rates. US natural gas production hit record levels beginning in March 2014 and continued the record run for an unheard of 7 consecutive months — an excess on average of 85 billion cubic feet (Bcf)/day.

As of November 7, 2014, EIA numbers showed working natural gas in storage totaled 3611 Bcf — not a record level, but much, much better than had been anticipated. Following a harsh mid-November cold snap, courtesy of Typhoon Nuri, stored supply drew down to 3359 Bcf, and there was some concern about more harsh cold in the coming winter months. The Henry Hub spot price closed on November 14, 2014 at $4.12/MMBTu.

But it didn’t happen. Except for a brief cold snap from January 7 to 10, above-average temperatures for most of the country continued during the month of December and January. Both demand for heat and electric generation fell. Nevertheless, production continued to be robust. On December 20, 2014, natural gas production hit a new high of 72.8 Bcf/d. Since November, prices have declined from the $4 mark by over a dollar to $2.98/MMBtu (Jan. 27, 12:05:39 est NYMEX). Storage levels are 8.2% above year-ago levels but 5.5% below the five-year average for this week.

Weather, Electricity Prices, & You: the Winter 2015 Natural Gas Update

8-14 Day Outlook of Temperature Probability image courtesy of weather.gov

The Rest of this Winter 2015

NOAA has backed off its forecast for a bitterly cold start to February to one that is mostly chilly during the first and second week when “amplified upper-level trough is expected” to frost the Upper Midwest down to the Gulf states and the Deep South. Below normal temperatures will reach into the Mid-Atlantic states and New England — especially in New York City, up the Hudson Valley, and into Boston. Residents in New York and New England, however, can expect higher natural gas prices due primarily to pipeline constrictions. A future pipeline project is slated to come online by November 2016, adding more than 2.5 Bcf/d of pipeline capacity to New England.

For the rest of February, NOAA can’t find any unambiguous diagnostic indicators so their projections offer equal chances for above, normal, and below normal temperatures, saying “the official February 2015 temperature outlook therefore favors above-average temperatures in Alaska, the western CONUS, and Florida, and below-average temperatures in Texas.”

Your Electric Bill

Weather, Electricity Prices, & You: the Winter 2015 Natural Gas Update

Three-Month Outlook for Temperature Probability image courtesy of weather.gov

As winter melts into spring, both natural gas and electric prices briefly dip. The EIA’s Short Term Energy Outlook (STEO) from January 13, 2015 expects an increase in natural gas generation “which rises from 27.3% of total generation in 2014 to 28.1% in 2016…” due to its attractive lower prices compared with coal. So IF the rest of winter remains normal-ish to moderate and IF natural gas production continues at its current pace (if only to maintain a comfortable storage level), this year’s lower fuel prices may drag electrical rates a little lower during the annual spring dip and slow their usual summer price increase.

With that spring price dip only one and half to two months away, now might be the time to begin shopping around for a better plan at a more competitive rate. Locking in an incredible low fixed rate can save you money and peace of mind during the uncertainty of the future —especially when the weather has such a deciding stake. So, start looking for a new long-term solution to avoid those expensive monthly electric bills.

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