El Niño is back. 

According to the Climate Prediction Center, there’s a 95% chance it will continue through winter.

This suggests winter will be milder and drier than normal throughout Michigan and the upper Midwest. In turn, natural gas demand for space heat should be lower.  Which should be bearish for market prices.

Does this reduce the risk of market volatility this winter?  Not necessarily.  There are more factors to consider.

El Niño does not have the same impact everywhere, every time.

El Niño is ultimately a phenomenon whereby warmer surface temperatures in the Pacific Ocean can disrupt global weather patterns, such as the Jet Stream.

Whereas El Niño typically brings warmer air with less precipitation to areas like Michigan, it can have the opposite effect in other regions.  Precipitation tends to increase across the south, accompanied by colder temperatures from Texas to the southeast.  The effects can be more intense, and last longer, in some areas than in others.

El Niño can affect more than natural gas demand.

An increase in space heat demand in the south may not seem likely to offset a huge amount of a decrease in the north.  But supply can be another matter.

Colder, wetter weather in places like Texas can affect the infrastructure that transports gas throughout the country.  Abrupt events like pipeline freeze-offs can pinch supply to certain areas.  Even a temporary problem that’s resolved within a few days can cause regionalized spot market spikes.

Winter doesn’t bow before El Niño.

Nor does the Lake Effect.  A winter that’s generally warmer and drier than normal in Michigan is still winter.  We can still experience cold spells or snowstorms that increase demand and market pricing, particularly in the spot market.

There are more factors than weather.

Domestic factors including production, storage levels, and demand for industrial process and power generation, all can have bearish or bullish effects on natural gas markets.  So can geopolitical factors affecting LNG exports, such as the complex situation in Europe.  And then there’s energy trading, with lots of money to be made, or lost, from market volatility.

What does this mean for my business?

This winter may be warmer and milder than the average Michigan winter, in general.  This may cause some downward pressure on natural gas markets, in general.

But there will still be risk, particularly in the spot market.  The magnitude of the risk can vary among businesses or facilities, based on an array of factors such as your load profile and the regulations of your utility.  How to protect against risk this winter is ultimately a business decision based on your risk tolerance.

We’re here to help you analyze and manage that risk.  We work with you to implement a strategy that fits your business, and to adapt over time.  Most of our customers already have a plan in place for winter that has proven successful over the years, with adjustments along the way.  We’ve already been in touch with most of you to prepare for winter.

Then again, things may have changed since we last talked, and you may have new concerns that we can help you address.  Contact us and let’s talk it over to ensure you’re comfortable with your natural gas plan as winter approaches.