Energy Management

Arctic Blocking: Will the Winter Forecast Turn Colder than Predicted?

3 min read

In Constellation’s December 2020 Energy Market Intel webinar, market analysts gave attendees an overview of the short- and longer-term winter forecast, the economy, natural gas and power fundamentals, and addressed customer questions.

Weather Update

Chief Meteorologist Dave Ryan shared some breaking news regarding the winter forecast. High pressure in the upper atmosphere in the North Atlantic is potentially setting up what is referred to as “blocking,” that could move more cold air into the Lower 48 states than previous forecasts were suggesting.

When blocking occurs, the jet stream buckles and forms a U-shaped air flow that dips in a southerly direction.  The question for the gas and power markets is how long this blocking maintains itself. Ryan noted that there is colder air available in Canada over the coming weeks to move south if the blocking pattern remains in place. The key feature of the webinar forecast was that the development of blocking potentially changes what was a consensus “above-normal” winter forecast to a colder solution. This would spur demand for natural gas in the residential and commercial-consumer sectors and significantly tighten the supply/demand balance in the near and mid-term.

Economic Outlook

Exelon Chief Economist Ed Fortunato gave his thoughts regarding the outlook for 2021 and is bullish (i.e., on the rise). Forecasts for gross domestic product (GDP) growth in the fourth quarter are being adjusted to the upside from a tepid 3-4% range to a more robust 9-11% range. The widespread distribution of the vaccine, potential for rising business and personal travel, and “pent up demand” in several economic sectors, could boost spending and employment in 2021.

The contrast between a booming Wall Street and a struggling Main Street was pointed out highlighting the potential for fits and starts in the economy in the first half of 2021 as some sectors have done very well while others have not. The automotive sector continues to recover, housing starts and sales of existing homes are very strong, and cr0the banks are in far better shape than they were during the financial crisis of 2008, and distribution of stimulus checks is imminent.  On the other hand, the airline, hotel, entertainment, small retail and restaurant sectors, have been hit hard and will likely not return to pre-COVID-19 levels in 2021.

Natural Gas Update

Natural gas storage, production, exports, and demand were covered in some detail during the webinar. Storage inventories began the withdrawal season (November 1) at near all-time highs and have been a bearish force on the NYMEX contracts for several weeks. The most notable observation regarding natural gas storage is that despite a very slow start to the withdrawal season, the Energy Information Agency (EIA) and other third parties are forecasting relatively low end-of-winter inventories.

Natural gas production in 2020 will come in well below 2019’s production and is forecast to drop year-over-year in 2021. The natural gas-direction drilling rig count is at 75 units and has barely recovered from its all-time low of 69 units set in the second quarter. For some perspective, the gas-directed rig count two years ago was more than 200. There has been a modest recovery in oil-directed drilling during this quarter, but it is still down 60% year-over-year.

Exports of natural gas are at all-time highs driven by the global liquefied natural gas (LNG) market. Winter in Asia and Europe and favorable pricing are driving demand for U.S. exports. Through December, LNG exports have averaged above 11 Bcf per day and are expected to remain strong in the coming first quarter. Exports of natural gas are an increasing share of total U.S. production and are increasingly impactful to the outlook for the domestic energy markets.

Demand for natural gas in general is strong across all sectors (i.e., residential, commercial, industrial, power generation), and if the economy continues to improve in 2021 and if production does come in lower year-over-year, a tighter natural gas supply/demand balance for 2021 is a potential outcome.

We invite you to join us for our next Energy Market Intel Webinar in 2021 where Constellation energy experts offer detailed updates related to the energy market, economy and weather, and much more each month. Register by visiting

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