A below-average Atlantic storm season in 2012 probably will provide little support for energy prices as natural gas trades at 10-year lows.
Only four hurricanes are expected this year, according to researchers at Colorado State University who pioneered long-range Atlantic forecasting. In total, the storm season that runs from June 1 to Nov. 30 will produce 10 named systems, compared with 19 last year, they said in a report April 4.
Natural gas has fallen 35 percent this year, the worst performer in the 24-commodity Standard & Poor’s GSCI index, as the U.S. recorded its fourth-warmest winter ever and as output rose with improved production techniques. Prices may slide further as forecasters predict a cooler-than-normal summer along with the diminished hurricane threat to the oil- and natural-gas-rich Gulf of Mexico.
“Your weather scenario is not at all positive,” said James L. Williams, owner of WTRG Economics in London, Arkansas. “It’s one where we could drop through $1.50 and maybe even bump a dollar, at which point you need to be a bankruptcy lawyer who knows about natural gas.”
Gas for May delivery settled today at $1.951 per million British thermal units on the New York Mercantile Exchange after dropping as far as $1.94, the lowest intraday price since Jan. 29, 2002.
Gulf Energy Interests
The Gulf of Mexico is home to 29 percent of U.S. oil output, 6.4 percent of gas production and 40 percent of refining capacity, meaning hurricane forecasts such as the one developed at Colorado State 29 years ago are closely watched.
A hurricane has winds of at least 74 miles (119 kilometers) an hour. Tropical Storm Don, which never grew more powerful than 50 mph, forced the shutdown of about 12 percent of oil production and 6.2 percent of gas output in the Gulf last July, according to the Bureau of Ocean Energy Management, Regulation and Enforcement.
The power of major hurricanes, with winds of 111 mph or more, was demonstrated in 2005 when Katrina and Rita killed more than 1,800 people, caused $91 billion in damage and destroyed 113 energy platforms in the Gulf.
The storms, which struck within a month of each other, shut down 95 percent of oil production and about 30 percent of U.S. refining capacity, and closed almost every large natural gas processing plant from Galveston Bay, Texas, to Alabama, the Energy Department said in a 2006 report.
The total natural gas production lost in the 10 months following Katrina was equivalent to 22 percent of yearly output in U.S. Gulf waters, the department said. Gas futures hit a record $15.78 in December 2005.
Major Storms Outlook
Colorado State predicts only two major storms will form this year.
MDA EarthSat Weather and Commodity Weather Group LLC have predicted 11 storms will reach the 39-mph threshold to become named systems in 2012.
The season will fall below the 12-storm average because the Pacific Ocean may warm and form an El Nino pattern, said Phil Klotzbach, lead author of Colorado State’s report. El Nino creates high vertical wind shear in the Atlantic that keeps hurricanes from developing, he said.
An El Nino may also mean the U.S. has a cooler summer, said Matt Rogers, president of Bethesda, Maryland-based Commodity Weather Group. Last year, Texas had the hottest summer ever in the U.S. with an average temperature of 86.8 degrees Fahrenheit (30.4 Celsius), breaking the mark of 85.2 set in Oklahoma in 1934, according to the National Oceanic and Atmospheric Administration.
Rogers said he expects May to September to be 1.1 percent warmer than the 10-year normal, while falling 9.1 percent below last year. He predicts average temperatures in the Northeast will be about 2 degrees below normal.
Summer in Cities
Heat in the large cities of the Northeast, as well in as Chicago and St. Louis, are what the natural gas market needs for prices to rise, Williams said.
“You have more people on the East Coast, so that is where you want your 100 degrees -- preferably 110,” he said.
The period from October to March is considered the heating season, when the most energy is consumed to warm homes and businesses. It is the peak for natural gas use in the U.S., said Teri Viswanath, director of commodity strategy at BNP Paribas SA New York.
Temperatures in the 2011-2012 season were 3.8 degrees above average, making it the second-warmest on record behind 1999-2000, according to NOAA. The weather contributed to natural gas inventories that reached 2.487 trillion cubic feet in the week ended April 6, the highest level ever for that time of year, Energy Department data show.
Stockpiles are forecast to expand by 24 billion cubic feet to 2.511 trillion in the week ended April 13, according to the median of 22 analyst estimates compiled by Bloomberg. The Energy Department releases its supply report for that week at 10:30 a.m. tomorrow in Washington.
Stockpiles also grew as drilling techniques including hydraulic fracturing, or “fracking,” allowed producers to reach previously bypassed deposits. Marketed gas output will rise 4.5 percent this year to a record 69.22 billion cubic feet a day, according to the Energy Department.
“We have got a three-month lead on last year’s injection season,” Viswanath said. “We are where we sat at June.”
Viswanath said high summer electricity demand for air conditioning and a more disruptive hurricane season than expected are needed to erode the stockpile surplus and boost the natural gas market.
“Frankly, weather has not been friendly to producers, so why would all these factors line up for producers?” she said. “It probably isn’t going to happen.”