Hurting Natural Gas Bulls Watch Balmy U.S. Winter Wind to Closeby
Mild weather hasn't helped gas markets deal with surplus
By gas measures, this may be one of the warmest winters ever
Spring starts next Tuesday, as far as meteorologists are concerned. And that’s the day natural gas traders should give up their hopes for the heating season.
The heart of the 2015-16 season -- December, January and February -- didn’t have the chill needed to make traders smile or people burn a lot of gas.
In short, it was a bust.
The season started with predictions that the El Nino in the Pacific would disrupt weather patterns enough over the U.S. to take the teeth out of winter. Except for some cold spots in January, many big cities from Chicago to New York had temperatures warmer than normal or just hovering near average, according to the National Weather Service.
“We did have a surprise in January with intermittent cold, but the key term is intermittent, where we needed very sustained cold,” said Teri Viswanath, managing director for natural gas at PIRA Energy Group in New York. “As we stand right now, it simply wasn’t enough.”
The three-month averages show temperatures above normal across much of the eastern U.S., with the highest readings in the Northeast and northern Great Plains, according to Commodity Weather Group LLC in Bethesda, Maryland.
The last month of 2015 was the warmest December on record across the U.S. and February is shaping up to be the second-warmest since 2000, said Matt Rogers, Commodity’s president.
If temperatures aren’t enough to persuade, there are always heating degree days. An HDD value is calculated by subtracting the daily average temperature from a base of 65 degrees Fahrenheit (18 Celsius). The larger the number, the colder it is and the more energy that needs to be burned to keep everyone warm.
Rogers said he estimates the natural gas-weighted HDDs for the 48 contiguous states to come in at 2,264 for December through February, which would be warmer than 2011-12. That season “is largely viewed as the winter that wasn’t,” Viswanath said.
The current winter could end up as the warmest in the natural gas category in records going back to 1950.
“The El Nino-driven warm winter theory has worked out,” Rogers said.
Another way to measure the winter is to look at how much natural gas is still in storage when the cold half of the year ends. According to Viswanath, the industry could exit the season with the second-largest level of storage, only bested by 2011-12, when the heating season officially ends in March. Futures prices have dropped 20 percent since the start of December.
Yet another blow to the market, which some also blame on El Nino, is the nice snowpack out in the Pacific Northwest and western Canada.
As of Wednesday, about 41.6 percent of the Pacific Northwest was covered with snow to an average depth of 23.6 inches (59 centimeters), according to the National Operational Hydrologic Remote Sensing Center in Chanhassen, Minnesota. Last year on the same day, the snowcover was 19.1 percent to an average depth of 8.1 inches.
In the Northern Rockies, the area blanketed by snow is about the same, but this year there is an average of 9 more inches on the ground.
More snow means more water for hydroelectric power, and that can lead to less demand for natural gas, Viswanath said.
There’s a chance the first half of March could be cooler than normal across the U.S. South, according to the Climate Prediction Center. However, that region lags behind the Midwest and Northwest in demand for natural gas for heating.
On occasion, a good March cold snap can come in and give the natural gas market a boost. Viswanath isn’t seeing it, through.
“This year is not going to be the outlier,” she said.