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Winter’s early start

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We are only one full week into November and Winter is already knocking on the door.  Hurricane Sandy not only brought a ton of wind and rain that affected 21 states and it disrupted the warmer than normal weather patterns we had been seeing.  The weather patterns have shifted and, on average,  temperatures have been nearly 10 degrees below normal for the eastern half of the country.  This weekend we will see a warm up across the Midwest while cold weather is taking hold of the northwest bringing with it our second major winter storm of the year.  A Nor’Easter following a similar track to Hurricane Sandy slammed the east Coast this week, making people already affected by Sandy more miserable.  Now we are eyeing a winter storm to the West as winter storm watches and warnings are posted for Montana, North Dakota and Wyoming. 

This begs the question, what do these dramatic shifts mean for Electricity and Natural gas demand? The simple answer is we will be taking natural gas out of storage earlier in November than we did last year, which should provide support to the upside on natural gas prices and, in turn, may push short term power prices up as well.  Despite seeing record levels of storage, I think we are going to see a much colder winter resulting in a much greater and faster storage draw down than what we saw last year when we experienced the warmest winter on record.  If we do consume substantially more gas this year than last year, we should experience a significant shortage year over year which will support the gas market and pop prices to possibly $5.00/mmbtu as we exit winter.  We have supply/production waiting in the wings but how quickly it can be brought to market will dictate the length of the market pop.  All in all, the market sits at $3.55/mmbtu for the prompt month Dec12 contract and it is and has been at a lucrative level for the past 18 months, despite being off the lows of $1.90 we saw in early spring.

Posted: November 09, 2013