The September natural gas contract was unchanged on Friday as the financial markets were quiet probably due to the weekend, however, this morning the financial markets are reacting to the news that Standard and Poor’s, a credit rating agency has downgraded the U.S. government debt from AAA to AA+. The crude oil market is also sharply lower this morning falling over $3.50 in the pre-opening trading as a turn toward slower US growth could undercut demand in the industrial sector, which has been near flat to slightly above year-ago levels this past month. Meanwhile high electrical loads are forecasted to persist in Texas, which along with hotter than normal temperatures in the Midwest and Eastern U.S. has kept power use of natural gas (a feedstock to produce electricity) high. As we indicated on Friday, it seems that if the economy is going to slow down as being forecasted by the financial markets then natural gas which is primarily a feedstock for industrial and commercial companies will undergo a price correction as well as we evidenced back in 2008.
On the tropical front, NOAA issued its updated 2011 Atlantic hurricane season outlook raising the number of expected named storms from its pre-season outlook issued in May. Forecasters also increased their confidence that 2011 will be an active Atlantic hurricane season. “The atmosphere and Atlantic Ocean are primed for high hurricane activity during August through October,” said a spokesperson for the Climate prediction Center. “Storms through October will form more frequently and become more intense than we’ve seen so far this season”. Across the entire Atlantic Basin for the whole season, June 1 to November 30, NOAA’s updated seasonal outlook projects, with a 70 percent probability, a total of 14 to 19 named storms (top winds of 39 mph or higher), including 7 to 10 hurricanes (top winds of 74 mph or higher), of which 3 to 5 could be major hurricanes (Category 3, 4 or 5; winds of at least 111 mph). These ranges are indicative of an active season, and extend well above the long-term seasonal averages of 11 named storms, six hurricanes and two major hurricanes.
In the lone star state this morning, the electrical grid operator began emergency procedures to prevent total blackout for the third day in a row last week on Thursday, as folks in the state wondered why their power system can't seem to handle the hottest or coldest days of the year. Back in February, the extreme cold brought down dozens of power generating units, leading to rolling blackouts across the state. Now, a heat wave is testing the grid as customers demand as much electricity as Texas generators can pump out. Still, the Electric Reliability Council of Texas said it managed to avoid rolling outages Thursday, in part by calling on some industrial and commercial customers in special electricity programs to shut down. Any power outages were due to other types of equipment failure. A senator from Texas was quoted as indicating that "The system is supposed to be designed to handle the extremes, but when you have the extreme extremes, that gets complicated," chairman of the Natural Resources Committee. Regulators and politicians are questioning whether Texas' deregulated electricity market offers investors the right incentives to build more power plants. They are planning hearings on tweaking the pricing structure and appealing to federal environmental regulators to back off new rules. If electricity companies built enough power plants to handle the record demand levels this week, many of those plants would sit idle the rest of the year. The same goes for power lines. Oncor's equipment is stressed by the extreme heat, and the lights in some neighborhoods have gone out because of equipment failures. But building the lines so they can withstand a week of 110-degree heat would be too expensive as well. As our political leaders attempt to figure out this dilemma, the heat continues in the lone star state this week and forecasted to remain all month.