Michael Scott Wilson1
(1) Exploration Geologist, Evergreen, CO
ABSTRACT: Tracking The ENSO Cycle (El Nino - Southern Oscillation)
The ENSO (El Nino-Southern Oscillation) cycle directly affects natural gas demand and indirectly affect gas supply in the U.S. The cycle consists of three phases: El Nino, Neutral and La Nina, based on temperature anomalies in the central Pacific Ocean. Characteristic temperature anomalies of the El Nino and La Nina Phases have been identified. Both El Nino and La Nina Phases cause mild winters in the Great Lakes region and low demand for natural gas. Jet stream tracks shift southward during El Nino and northward during La Nina, affecting the penetration of cold fronts into the central U.S. and hurricanes in the Gulf of Mexico. Henry Hub spot gas prices, Heating Degree Day counts, U.S. gas consumption and hurricane activity vary with ENSO phases. The Neutral Phase correlates with highest mid-winter Heating Degree Day counts, highest spot gas prices, and highest gas company profits.
Natural gas businesses should be ready to take advantage of each Neutral Phase and should aggressively increase production, reduce debt and improve profitability. Gas businesses must also be alert for the next ENSO phase. When early warning signs of El Nino or La Nina appear, gas companies should switch to defensive strategies. Companies can plan ahead for the difficult phases of the cycle, and can position themselves to make acquisitions when asset prices, acreage and drilling costs decline. To maximize profits, the ideal gas company should have plenty of gas to sell during Neutral Phases, when gas prices are highest, and cash available for bargain-hunting when gas and asset prices slump during El Nino and La Nina Phases. By monitoring ENSO forecasts, one can prepare a probable scenario for the future which can be helpful for strategic investment decisions.
AAPG Search and Discovery Article #90906©2001 AAPG Annual Convention, Denver, Colorado