This summer's record breaking temperatures across the country increased electricity consumption —a growing share of which is now generated with natural gas. And while summertime natural gas demand continues to be boosted by the Environmental Protection Agency (EPA) emissions rules and a tight global coal market, it still pales in comparison to how much gas is consumed during the winter.

Every winter, cold weather commandeers the natural gas market. Even during mild winters, demand levels surpass production, and additional supply is withdrawn from natural gas storage caverns. The U.S. currently has a working storage capacity in excess of 4 trillion cubic feet (Tcf). Each season, about 2 Tcf of natural gas gets pulled out of storage. The average withdrawal rate from November to March is 13 billion cubic feet per day (Bcf/d), although the withdrawal rate has jumped up to as high as 29 Bcf/d under extreme conditions.

Icy temperatures also create equipment challenges that affect supply. For example, wellhead freeze-offs occur when water vapor in the natural gas stream freezes at the wellhead, temporarily stopping up the reservoir. They can severely compound the impact of cold weather on natural gas inventory, particularly when freezing temperatures extend down to producing states like Texas, Oklahoma and Louisiana. In fact, a spike in cold weather was the principle driver of the 1 Bcf/d production decline this past February. In March, when the cold weather receded, production increased by 2.2 Bcf/d.

Natural gas demand during the winter is directly related to the intensity of the cold weather, and the residential sector is most responsible for this relationship. More than half of the homes in the U.S. use natural gas as a primary heating fuel, and many others use it indirectly through electricity generated with natural gas. While population growth has expanded the pool of residential customers, consistent improvements in appliance efficiency has held weather-normalized residential demand flat over the last 40 years. The spikes and troughs are mainly driven by the presence or absence of icy weather.

Winter 2012 Seasonal Forecast
So what will the 2011-2012 winter look like? Seasonal forecasting is a tricky business that requires the combination of technological capacity to gather a large amount of data and the experienced personnel to make sense of it. CenterPoint Energy employs the services of WSI, a private weather forecasting company that provides short- and long-term forecasts for a wide range of industries. Based on the current trends and patterns, WSI's preliminary forecast indicates that below-normal temperatures will become widespread in the eastern U.S. in November and expand to the north-central U.S. in December. The north-central U.S. is expected bear the brunt of the cold weather, especially during December and January. Like last year, the second half of the November-March time period will moderate as the cool temperatures shift to the western U.S. Overall, this winter is expected to be colder than normal, but warmer than the winter of 2011.

The price of November 2011 – March 2012 NYMEX natural gas futures peaked in July of 2008 at $11.29. Since then, the winter strip has declined considerably. One of the principal drivers of this decline has been substantial growth in production—including gas produced from shale. While colder-than-normal temperatures will increase demand, current prices imply that the market expects there will be plenty of supply to meet those needs. Of course factors like unexpected supply declines or exceptional demand growth could still cause prices to spike this winter. Unfortunately, forecasting natural gas prices is just as difficult as predicting the weather.

NYMEX natural gas futures peaked in July 2008 at $11.29 and have declined considerably ever since due to production growth.

This past winter (November 2010 – March 2011) was the first since the winter of 2000-2001 that was substantially colder than normal.

Return to top >>