The EIA currently provides monthly data on natural gas production and consumption through July. Based on the deviations in storage additions from our models, it appears that demand trends are weakening. In fact, in September our model suggests that natural gas demand fell by 1.74 BCF/d, or 2.62%. Since September, the economy has weakened substantially. For example, we had previously modeled that total 2008 electricity consumption would be slightly lower than in 2007. Recent data from the EEI shows electricity demand is down 4% YOY.

Our original estimate of –36% natural gas demand growth in 2009 now looks rather aggressive. Unfortunately, we will not have EIA demand data for October until mid-January. Based on other indicators of demand, such as capacity utilization, it is very safe to say that our previous 2009 demand projections (see our August 14th ‘Dirty Little Secret’ piece here on Seeking Alpha) are too high and future adjustments to our demand model will be to reduce estimated demand going forward.

The natural gas market has a dirty little secret: The U.S. natural gas market is currently massively oversupplied. We believe that E&P companies know this, with Goodrich Petroleum (GDP), XTO Energy (XTO), Cabot Oil and Gas Corp (COG) and Chesapeake Energy (CHK) coming to public markets in recent weeks to raise capital in the face of near-record natural gas prices.

The dirty secret is not obvious, until you spend some time with the data. While natural gas demand is expected to increase by 1.42% in 2008, from 65.42 BCF/d to 66.35 BCF/d, domestic natural gas supply increased from 52.97 BCF/d in May 2007 to 57.14 BCF/d in May 2008! This is a stunning 4.17 BCF/d supply response in the midst of a .93 BCF/d increase in demand. The natural gas markets are currently 3.24 BCF a day oversupplied!