Production, Weather, and Prices – the Winter 2016 Natural Gas Update

By Vernon Trollinger, December 7, 2015, News

As more electric utilities burn natural gas to generate electricity, both the supply and price of natural gas have a direct effect on your monthly electric bill. The current huge El Niño is expected to peak in December 2015 with its strength diminishing to neutral by late spring or early summer of 2016. The current temperature forecasts continue to show above normal temperatures in the northern US, including Pennsylvania and New York.

This means northern states will use less electricity and natural gas for home heating. Consequently, both natural gas and electricity prices are expected to remain much lower this winter compared to the last two years.

This is great news going into the holiday shopping season, and it’s also good information to help you plan into 2016. But instead of going overboard on low prices, let’s get neck-deep in some actual numbers.

Production, Weather, and Prices - the Winter 2016 Natural Gas Update

The lights of a natural gas plant at night are eerily beautiful.

Record Production and Record Storage

Last spring’s record production levels continued through Summer 2015. In August 2015, monthly production hit a record high of 76.5 Bcf/day, and by the end of the storage-injection season, gas stock rose to a record 4,000 Bcf. The US Energy Information Agency (EIA) Short Term Energy Outlook (STEO) from November 10, 2015 predicted that natural gas production will rise by 4.7 Bcf/d (6.3%) for all of 2015 and then by 1.6 Bcf/d (2.0%) in 2016 as wells and new pipelines are finished in the Marcellus shale play.

To compare with 2014, storage levels are 404 Bcf (11%) higher and 207 Bcf (5%) higher than the five-year average.

In other words, lots and lots more natural gas is available now than before. In terms of price, EIA expects this year’s prices to be about $1 below last year’s. On Friday, November 27, 2015, NYMEX price closed down at $2.212/ MMBTU. By comparison, Marcellus local city-gate prices have been much lower than both NYMEX and the Henry Hub – between $1 to $1.23.

In the long term view, average Henry Hub spot prices are forecast to linger below $3/MMBtu through June 2016 and then climb to $3.50/MMBTU — due mainly to power burn to meet a high summer cooling demand. That price is expected to remain above $3.00/MMBTU for the rest of the year.

Unfortunately, staying profitable with all that cheap natural gas sloshing around takes its toll. This year, 36 companies declared bankruptcy, and the industry expects more. As in previous glut years, reducing production seems the only way for companies to raise prices and stay in the game.

Does Cheaper Natural Gas = Cheaper Electricity?

All this natural gas gives generating companies more incentive to mothball their old coal fleet. July 2015 saw more electricity generated nationally from natural gas (35%) than coal (34.9%), and the next month saw a power burn increase of 13.8% over the previous year.

Coal’s not the only fuel feeling the pinch. Several nuclear plants in New England and elsewhere are looking to close by the end of this decade, which accounts for more than 4,000 MW of capacity. EIA projects natural gas consumption in the power sector to increase by 16.8% for 2015, but then fall 1.2% in 2016 as gas prices rise above that $3.00/MMBTU mark.

So, there’s some churn as older generation sources are swapped out for natural gas systems. More nuclear plants are being built as well as renewable projects. For the immediate future, however, EIA is forecasting a 1.6% decline in winter retail sales of electricity to the residential sector due to warm weather, with residential electricity sales falling by 0.3% in 2016. Since suppliers like their year-end sales bonuses as much as the next guy, there’s a good chance that rates will dip lower as the effects of this year’s El Niño begins to peak.

How You Can Save

Production, Weather, and Prices - the Winter 2016 Natural Gas Update

Securing a long-term fixed-rate electricity rate now will protect you from projected higher natural gas prices in Summer 2016.

Now is the time to lock in lower electricity rates by signing up with a fixed-rate 12-month or 24-month plan. With above-normal heat anticipated for Summer 2016, locking in today’s low prices from cheaper natural gas will keep your electricity bill from getting burned when you try to keep cool.

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A native of Wyomissing Hills, PA, Vernon Trollinger studied writing and film at the University of Iowa, later earning his MA in writing there as well. Following a decade of digging in CRM archaeology, he now writes about green energy technology, home energy efficiency, DIY projects, the natural gas industry, and the electrical grid.

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