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What to Expect this Winter in the Energy Market

October 17, 2019

The warm summer breezes have turned to chilly fall nights which signal changes within the energy market. The 2019-2020 winter weather predictions have been made which we utilize to determine the impacts to the natural gas and electricity markets during the volatile winter season.

The U.S Energy Administration recently released its Short-Term Energy Outlook for the 2019-2020 winter season. There will likely be a mild start to the winter season compared to last year due to the neutral El Nino. The lack of sunspots and blocking parameters, along with, low sea ice argues a more (+) North Atlantic Oscillation (NAO) leaning toward a warmer winter. If this is the case, major heating fuels will decrease in use. Propane is predicted to decrease by 15%, heating oil by 4%, natural gas by 1%, and electricity by 1%. Although the prediction for the short-term season is showing a mild start; long term, the best opportunity for stronger eastern US cold will be the back half of this winter. Northeast could experience winter chills beginning late December into 2020 with a stormy season to start off the new year. The Southeast should experience a wet start to the season due to warm water temperatures from the Gulf of Mexico over to the mid-Atlantic coasts. Compared to last year, the Polar Vortex is likely to keep the frigid air above the polar region early in the winter season before releasing it over the North/Central Plains and Midwest region. There is also the possibility of encouraged lake-effect snow events for the Upper Midwest and Great Lakes region. Overall, the prediction seems to emphasize that we are heading into a polar coaster this season, meaning we could see back and forth extremes between temperature and precipitation.

Along with a Polar coaster season, we are also heading into the winter season with rising prices from economic pressures. A private research firm called The Conference Board surveyed its members of CEO’s and CFO’s on their confidence level of the global economy.  A reading of 50 or above reflects more positive than negative sentiment. The survey showed the confidence level being a low 34 for Q3, which is the lowest its been since Q1 2009 when it hit 30. With a low confidence level, it is likely that energy industry investors are not as eager to invest in capital under these conditions. Their confidence is repressing due to growing concerns for the global economy, tariffs, and trade issues. A recession would likely dry up capital investment further for energy companies, such as investments in natural gas rigs and pipeline maintenance, causing prices to spike. We would be heading into the winter season with increased prices, which would only spike more with the amplified demand due to extreme weather conditions and the rising Liquid Natural Gas (LNG) exports. Natural gas sets the trend for energy pricing, which means electricity would soon follow suit. Electricity is moving from being coal generated to natural gas and renewable sources which are highly impacted by volatile weather conditions and correlated with natural gas pricing.

Since the fall weather has just arrived and Mother Nature can be unpredictable, we cannot confirm what is to come. If forecasts are correct, we may experience milder temperatures for most areas at the start of the season, that could turn frigid come late December and early 2020. Natural gas prices are likely to continue to rise due to economic uncertainty but may also spike again at the start of the cold weather. The prediction of a polar coaster could bring volatility with natural gas and electricity pricing that could cause unexpected increased energy costs. APPI Energy recommends reviewing your current energy supply contracts to determine what effects, if any, price fluctuations can have on your costs. Know when your current contracts expire and if it is during this winter, we suggest you look at prices now.

For more information about how to avoid unexpected energy costs or to learn more about how to implement a customized energy management strategy for your organization, please call APPI Energy at 800-520-6685.