From Texas to both corners of the North, the National Weather Service (NWS) now expects above-average summer heat across the vast majority of the country this summer – a welcome development for natural gas bulls.
If the outlook proved accurate, it would drive sustained elevated gas demand for the first time in 2024, helping to balance an oversupplied market and raise both cash and futures prices off the basement levels they hovered at through a mild winter and spring.
In an updated summer forecast released this month, NWS meteorologists said that, aside from a sliver of the Northern Plains, hotter-than-normal conditions were likely to canvas the Lower 48. Record or near-record heat could stretch from Texas to both the Pacific Northwest and the Northeast, with large swaths of the Midwest and Mountain West lying in those paths and poised to bake this summer.
The only exceptions: Portions of North Dakota and South Dakota – along with tiny areas that border those states – have equal chances of above-average, below-average and normal temperatures.
Given unfavorable fundamentals through most of 2024 to date, Paragon Global Markets LLC’s Steve Blair, managing director of institutional energy sales, told NGI that an exceptionally hot summer “could be the savior” for Lower 48 natural gas bulls.
He noted that gas prices emerged from winter at weak levels. Demand proved modest throughout the heating season amid seasonally benign weather, while production reached record levels of about 107 Bcf/d in the heart of winter. The combination tilted the market into a state of imbalance. While producers have scaled back this spring, lowering average output to around 100 Bcf/d, natural gas in storage as of mid-April was still 36% above the five-year average.
Now, with spring weather settled in and annual pipeline and LNG export facility maintenance projects ongoing, supply continues to outstrip demand. Prompt month Henry Hub futures prices have consistently traded well below $2.00/MMBtu in recent weeks – less than a fifth of the current decade’s highs. NGI’s Spot Gas National Avg. clocked in at $1.380 on Tuesday. While cash prices briefly spiked in January, the national average has hovered around levels that are half of last spring’s highs.
The three-month summer outlook, covering June through August, was produced by the NWS’s Climate Prediction Center, a division of the National Oceanic and Atmospheric Administration (NOAA). The administration’s forecasts show summer temperatures likely to hover above average over most of Texas, the Southwest, Mountain West and Northwest as well as the Northeast. Nearly everywhere else, daytime highs are “leaning” toward higher than historical norms.
NOAA forecasters tied their expectations in part to a likely change from the current El Niño climate pattern to a La Niña during the coming summer. La Niña patterns tend to present modest cooling effects globally, but in recent years, they have bolstered heat levels across the Lower 48.
The most recent three La Niña summers – from 2020-2022 – all ranked among the 10 hottest on record. What’s more, according to NOAA data, when La Niña follows a strong El Niño such as the one that contributed to mild conditions over the past winter, the odds of a hot summer increase even more. Following the eight most intense El Niño winters since 1950, summer heat proved greater than the year before. If that happens again, it could send average national temperatures to record levels this summer.
“The transition to La Niña will make for a significant change in the weather patterns across the globe, including the U.S. this summer,” DTN meteorologist John Baranick said in a report. “The main concern is a developing upper level ridge this summer. Ridges are notorious for hot and dry conditions. History suggests an upper-level ridge will be likely over the middle of North America in the summer.”
Climate change is compounding matters, said NOAA Administrator Rick Spinrad.
“Climate change is causing more frequent and intense heat waves that are longer in duration,” Spinrad. “Last year was the warmest year on record for the globe, and we just experienced the warmest winter on record.”
NOAA said temperatures were warmer than average over the vast majority of the Earth’s surface in 2023. It also said there is a one-in-three chance that 2024 will be warmer than 2023 and a 99% chance that 2024 will rank among the top five warmest years on record.
