Winter has lost its icy bite for the second straight year in the US, wrongfooting forecasters and slackening demand for natural gas, resulting in excess supplies.
Unusual warmth across most of the country has led to the first-ever recorded rise in US natural gas inventories during the month of February. Normally utilities draw down stocks to fulfil heating demands.
Demand for gas used in heating is averaging less than 38bn cubic feet per day this winter, off by more than 1.5bn cu ft/d from the five-year average, according to Platts Analytics.
“Weather has been a big headwind for the gas distribution utilities in the last few months,” said Travis Miller, director of utilities research at Morningstar in Chicago.
“A lot of gas utilities rely on heavy usage during the winter months to drive earnings for the entire year. That’s going to be a challenge this year.”
When Public Service Enterprise Group released quarterly results on February 24, temperatures outside the utility’s New Jersey headquarters crested at a record 74 degrees Fahrenheit. “As much as it pains me to say, please enjoy this wonderful weather,” Ralph Izzo, chief executive, told analysts.
A lot of gas utilities rely on heavy usage during the winter months to drive earnings for the entire year. That’s going to be a challenge this year
The balmy conditions follow the warm winter of 2015-16, which had been intensified by El Niño, the Pacific weather pattern. When government forecasters looked ahead last autumn they eyed a winter about 12 per cent colder than last year, if still above normal.
Instead, this heating season has been running 3 per cent warmer than last year, weighted for population, according to the US National Weather Service. Over the past 30 days, more than 700 monthly high temperature records were set across the country, while only one low record was made.
Late February brought temperatures that are more likely to jump-start air conditioners than furnaces: Burlington, Vermont, just south of Canada, reached a record 72F.
“This kind of deviation from the norm is extraordinary, and the fact is it’s been sustained,” said Chris McGill, vice-president of energy analysis and standards at the American Gas Association, a utility trade group.
Residential and commercial heating customers form the biggest source of US gas demand during the wintertime, eclipsing electric power plants. US gas prices have tumbled by about a quarter from the start of the year.
Some utilities are able to compensate for lost gas revenues with weather normalisation contracts, which allow them to recoup some forgone revenue from customers after a warm winter but reward customers after a colder one.
The PSEG annual report said cash receipts from utility customers declined $249m due to warmer weather in 2016, but it had petitioned regulators to collect $54m from them under weather normalisation. “Customers still save on the avoided cost of fuel if weather is warmer than normal,” a spokeswoman said.
Over the past century, US winters have gotten warmer on average. Utilities plan fuel supplies and investments based on decades of historical data, understanding they need to serve customers during bouts of extreme cold, Mr McGill said.
“With that said,” Mr McGill added, “year after year after year of warmer conditions begins to impact and influence that algorithm.”
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