Noon: Weather, supply boost natural gas prices
This year’s hot summer was predicted by WeatherBELL’s Joe Bastardi who, on Ground Hog Day, referenced El Niño and said: “we may have the hottest summer since 2012.” Dr. Roy Spencer, Principal Research Scientist at the University of Alabama in Huntsville, explains: “it is usually the second calendar year of an El Niño event that is the warmest.”
El Niño is a natural weather pattern first discovered centuries ago by Peruvian fisherman who noticed that the ocean would often warm late in the year. They called the phenomenon El Niño, after the Christ Child. “Modern researchers,” according to Bloomberg, “came to realize its importance to global weather in the 1960s, when they recognized the link between warm surface water and corresponding atmospheric changes.”
El Niño usually means warmer or milder winters and cooler summers in the U.S. — which has been bad for producers of America’s natural gas, as less has been needed for heating and air conditioning. This past winter’s milder temperatures coincided with abundant output from shale formations, that continued to grow through last winter, and, as reported by Natural Gas Intelligence (NGI): “collapsed natural gas prices to the lowest levels since 1999.” As a result, wholesale electricity prices also tumbled.
While the warmer winter and oversupply condition coincided to drive natural gas prices to their lowest levels in almost 17 years, weather and supply are now driving them back up.
El Niño patterns are usually followed by what is called La Niña — which happens as the ocean temperatures cool. La Niña generally takes place three months, or as much as twelve months, after an El Niño cycle. A report from CNBC, back in January, projected that this year’s El Niño would “fade by May-July” — which is what we are seeing and that is causing the hotter, drier summer.
Bloomberg cites Kevin Trenberth, distinguished senior scientist at the National Center for Atmospheric Research in Boulder, Colorado, as saying: “The cycles occur every two or three years on average and help regulate the temperature of the Earth, as the equatorial Pacific absorbs the heat of the sun during the El Niño and then releases it into the atmosphere. That can create a La Niña: a ‘recharge state’ when ‘the whole Earth is cooler than it was before this started.’”
While experts differ on the exact timing, most expect La Niña to form as early as July or as late as December — or even January. Reports indicate that a strong La Niña could push more polar vortexes down into the U.S. and typically a strong El Niño, as we’ve just experienced, is followed by a strong La Niña.
On June 29, the Financial Times announced: “U.S. natural gas prices have leapt 30 per cent this month as hot weather boosts demand for air-conditioning and slowing supplies point to a gradually tightening market.” It adds: “After years with prices in the doldrums, U.S. gas output has also begun to level off.”
The Price Group’s Phil Flynn, seen daily on the Fox Business Network, told me that with the projected cold winter, we are facing high demand at a time when natural gas production is “getting ready to fall off a cliff.” He is encouraging his clients into natural gas.
For consumers this may mean that, because wholesale electricity prices strongly correlate to natural gas prices, power supply costs could be impacted — resulting in higher utility bills. Because of low natural gas prices, homeowners have not felt the full hit of higher cost renewables — but that could be changing as we head into a La Niña winter.
The author of Energy Freedom, Marita Noon serves as the executive director for Energy Makes America Great Inc., and the companion educational organization, the Citizens’ Alliance for Responsible Energy. She hosts a weekly radio program: America’s Voice for Energy — which expands on the content of her weekly column.