This summer has been warmer than normal and has helped reduce the storage surplus from 900 Bcf in April to 465 Bcf (+17%) over levels one year ago. The heat helped rally the NYMEX prompt month contract to a current summer high of $3.277 on July 31. The heat ridge that was over much of the Midwest & Mississippi Valley in July may be lifting. Weather models are indicating a change in the pattern that could bring cooler air down from Canada and contain most of the heat to West of the Southwest. This will likely have implications for gas fired generation demand.
As the map below shows, deviations from normal have been greatest over the Upper Midwest and Great Lakes region.
This heat along with low gas prices increased gas-fired generation demand well above year ago and 5 yr. average levels (see chart). This demand may have peaked recently.
On Thursday, Aug. 9, EIA’s weekly storage injection reported a build of 24 Bcf, lower than market consensus of 30 Bcf and below last year’s 31 Bcf. NYMEX rallied +6% to an intraday high of $3.12 before turning around and closing up +1.2 cents. The warm pattern we saw in July over the middle of the Lower 48 looks to now be shifting back toward a normal pattern.
A shift in the pattern bringing cooler temps would reduce gas fired generation demand, a key short term driver. The smaller than normal injections into storage this spring and summer have reduced the likely hood of gas storage exceeding capacity levels. Any further pullback in gas prices in August could present customers with the opportunity to lock in a percentage of power or gas load before a traditional fall rally in anticipation of the upcoming 2012/’13 winter.
Source: Earth Stat, EIA, NOAA