Bloomberg News

Cool Summer, Few Hurricanes No Help to Energy Markets, MDA Says

May 01, 2012

Temperatures in the U.S. this summer will be cooler than the past two years and the number of hurricanes coming out of the Atlantic will probably be less than 2011, forecasters from MDA EarthSat Weather said.

While June to August may be warmer than both the 10 year and 30 year averages, temperatures aren’t forecast to reach the record hot levels of 2011 and 2012, said Travis Hartman, energy weather manager at MDA in Gaithersburg, Maryland. That means less energy will be needed to cool homes and businesses.

“If you are sitting in this room looking for a bullish story this isn’t the presentation to watch,” Hartman said at a joint presentation by MDA and Bloomberg LP in New York today.

Commodities traders watch temperature projections and cooling-degree days forecasts to gauge energy use and demand. About 51 percent of U.S. households use gas for heating, according to the Energy Department, while demand for the fuel from electricity generators peaks in the summer months to meet air conditioning needs.

Gas for June delivery rose 8.6 cents to settle at $2.371 per million British thermal units on the New York Mercantile Exchange today. The futures have declined 21 percent this year and gained 7.5 percent in April, the biggest monthly increase since March 2011.

The projected population cooling-degree days value for June to August may be 907, which is more than the 10-year average of 894, Hartman said. Last year had the highest population weighted value at 1024, followed by 2010, which had a value of 1018.

Degree Days

Cooling-degree days are calculated by subtracting a base of 65 degrees from the daily average temperature to show energy demand. Higher values mean warmer weather and more energy being used to cool homes and businesses.

MDA gives greater weight to the larger population centers in the U.S., such as the East Coast, when determining its final number, Hartman said.

In addition to the summer forecast, MDA also predicted 11 named storms would emerge from the Atlantic during this year’s hurricane season, which runs from June 1 to Nov. 30, according to Chris Hyde, a meteorologist with the commercial forecaster.

A storm has to have maximum sustained winds of 39 miles (63 kilometers) per hour to be given a name by the U.S. National Hurricane Center in Miami. An average season during the last 30 years produced 12 storms, according to the hurricane center.

“In 14 years, this is the first below-normal forecast that we put out,” Hyde said.

Hurricane Forecasts

Of those 11 storms, Hyde said 5 may become hurricanes with winds of 74 mph or greater. Colorado State University, which pioneered seasonal hurricane forecasts, predicted last month predicted 10 storms would form last month.

The Gulf of Mexico is home to 29 percent of U.S. oil output, 6.4 percent of gas production and 40 percent of refining capacity, meaning hurricane forecasts are closely watched. In addition, Florida, which is the world’s second largest orange producer behind Brazil, is often in the path of Atlantic storms.

Hurricanes can also cause a tremendous amount of insured losses, said Jonathan Adams, a senior equity analyst for Bloomberg Industries.

When considering the potential damage a storm can inflict, it is important to look just beyond how past incidents would have measured up in modern dollars, Adams said at the event. More people are living along the U.S. coastline than ever before and they have greater per capita wealth.

So if a storm were to hit it would potentially cause greater damage than in the past because there would be much more to destroy, he said.

Both the hurricane forecast and the summer outlook depend on whether an El Nino, or warming in the Pacific Ocean, develop, Hartman said. If the El Nino doesn’t develop, as some models predict, that could change everything, he said.

To contact the reporter on this story: Brian K. Sullivan in Boston at bsullivan10@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net


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