The Kobiona Monitor

Volume 3 / Number 4 April 27, 2021

Another Hot Summer? Yeah, most likely.

Kobiona’s leadership has enlisted the help of our Market Intelligence Desk to craft this monthly publication to share major market dynamics impacting future power and gas prices. As every client’s situation is unique, we encourage you to review market movements with us to decide whether any action on your part could serve to lower your future costs or avoid known, coming increases.

This month’s issue is devoted to one topic – the Summer 2021 weather forecast! You may recall the Summer of 2020 was the 3rd hottest on record as well as the most act ive hurricane season in history. We’ll take a look on what meteorologists are predicting for the Summer of 2021, and the impact those predictions are already having on power and gas prices.

If there are any fundamentals we’ve left out in this edition that you’re craving, just shoot us an email and we’d be happy to send over whatever market info you need.

Remembering Summer 2020
As most of us were sequestered in our backyards, the Summer of 2020 proved to be the 3rd hottest since 1950. Cooling demand throughout the U.S. served to put a huge dent in the glut of natural gas resulting from a warmer-than-average winter (19/20)

Graph of USA population

A NOAA Study, published in 2020 and updated in January 2021, indicates a “strong probability that future years will continue to be among the hottest on record.”

Graph of last 7 years highest temperature

https://www.ncei.noaa.gov/news/projected-ranks

Summer 2021 Forecasts – Another Top 10 Likely
Of course it always depends on who you ask, and being accurate is not on the list of job requirements for weather people! Among weather vendors, most are predicting another Top 10 summer, albeit not like a Top 5 or as hot as last summer.

We had to check in on what our gold old friends at the Farmer’s Almanac had to say.

According to the extended forecast in the 2021 Farmers’ Almanac, summer should be “stormy, with a greater-than-average frequency of thunderstorms for a large portion of the country. Many of these storms will be strong, particularly over the eastern third of the nation. Summer temperatures are predicted above-normal for about two-thirds of the country, especially in the South and East. While typically the hottest weather can be expected in late July or early August, this year’s summer heat could peak in late August, into early September.”

2021 summer outlook graph

The National Weather Service is in agreement, looking for severe heat in the Southwest and Northeast.

3 month temperature probability graph

Drought Conditions Persist for much of the U.S.
In addition to forecasted heat, much of the U.S. is set to enter May and early summer heat under “severe” to “abnormally dry” conditions, meaning heat is likely to intensify a nd linger – driving up cooling demand. Once severe drought conditions persist for months even average rainfalls, should they occur, cannot reverse them.

USA drought monitor graph

Follow changing drought conditions through the summer here: https://droughtmonitor.unl.edu

Upward Pressure on Commodity Prices
Given unimpressive natural gas storage inventories and weak season-to-date injections (as of the EIA’s April 16th report, inventories stand at less than 1% above the 5 year average) it’s no surprise forecasts for another hot summer are putting upward pressure on both gas and power futures, which had spent most of 2020 at or close to 20 year lows.

10-Year Natural Gas Strip

Graph of 10-Year Natural Gas Strip

Power Forwards for Regions Across the U.S.

Graph of Power Forwards for Regions Across the U.S.

Source: Constellation/Exelon

Questions? For those tasked with procuring power and gas for the first time — or the tenth time — the industry can seem overwhelming with densely-technical and sometimes conflicting information. We welcome your questions on how to apply our observations, as well as your feedback on The Kobiona Monitor. Please share how we can make this publication more useful by calling us on 844-209-7972, or contacting us via email, info@kobiona.com.