FERC Winter Outlook: Fuel Costs to Dip, Production and Storage to Rise RSS Feed

FERC Winter Outlook: Fuel Costs to Dip, Production and Storage to Rise

Moderate weather in the Midwest, Northeast, and Pacific Northwest this winter should diminish total residential and commercial electricity and natural gas demand – and ample production and storage will drive prices down. That’s a promising scenario for the energy industry and a reason for ratepayers to “chill out” about how the climate will affect their consumption, according to a report released on October 15 by the Federal Energy Regulatory Commission’s (FERC’s) Office of Enforcement.

The 2015-2016 Winter Energy Market Assessment, presented by staff at FERC’s regular meeting, finds that, as always, weather is one of the primary and least predictable drivers for the natural gas and electricity markets. However, the three-month outlook for December 2015 through February 2016 is promising: In fact, some analysts at the National Oceanic and Atmospheric Administration (NOAA) project this winter to be 7 percent warmer than last year’s and 3 percent warmer than the 30-year average, the researchers reported.

Temperate conditions in the Midwest and Northeast should help depress total residential and commercial natural gas demand during the winter, although LNG exports and industrial facilities could add to total demand as operations begin.

Natural gas storage inventories began this year’s storage injection season (running from April 1 through October 31) below the five-year average, the report states. However, storage refilled quickly during the spring and summer, as strong production growth outpaced demand. As a result, the assessment shows that natural gas inventories may reach 4 trillion cubic feet (Tcf) by the end of this month, which would be a record level. Even if inventory withdrawals matched Polar Vortex levels this season, the research finds that storage would remain adequate.

What’s more, the U.S. natural gas market should be well-supplied by producers this winter. Gains early in the year helped total production set a new year-to-date record at 72 billion cubic feet per day (Bcfd), up 4 percent.

Electricity prices also increasingly track natural gas markets as gas-fired generation increases. In addition, increased integration of renewables can cause price volatility, particularly in the Western markets, such as the California Independent System Operator (CAL-ISO).