February 15 Natural Gas Storage Report: Our Expectations And Forecast

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by: Bluegold Research
Summary

This Thursday, we expect EIA to report 1,897 bcf of working gas in storage for the week ending February 9.

We anticipate to see a draw of 181 bcf, which is 61 bcf larger than a year ago and 27 bcf larger vs. 5-year average.

Annual storage deficit is set to continue to expand for the rest of winter and into spring.

U.S. Energy Information Administration should report a much bigger change in natural gas storage this week compared to the week prior. We anticipate to see a draw of 181 bcf (3 bcf smaller than the comparable figure in ICE's latest report for the EII-U.S. EIA Financial Weekly Index, but 61 bcf larger than a year ago and 27 bcf larger than the 5-year average for this time of the year).

We estimate that last week, the number of heating-degree days (HDDs) rose by 10% w-o-w across the U.S. An increase in heating demand was especially pronounced in the Central and Midwest parts of the country. This week, however, the cold weather retreated and we believe that HDDs should drop by 15% w-o-w for the week ending Feb. 16 (see the chart below).

The latest weather models are returning bearish results. ECMWF extended-range model is projecting:

  • below normal HDDs for the week ending Feb. 23;
  • below normal HDDs for the week ending Mar. 2;
  • normal to slightly above normal HDDs for the week ending Mar. 9.

CFSv2 long-range model is still projecting below normal HDDs in February and just normal HDDs in March.

GFS 12z Ensemble mid-range model is showing 4% fewer HDDs over the next 15 days compared to the norm.

ECMWF 12z Ensemble mid-range model is showing 11% fewer HDDs over the next 15 days compared to the norm.

Overall, our analysis shows that HDDs should drop by 9% w-o-w next week (see the chart below). Notice, however, that the decline in HDDs is partly the result of seasonal factors (as we move closer towards the spring, the absolute number of HDDs is declining, which is perfectly natural). Also, the rate of change is moderating, but it is a negative change, nonetheless.

Source: Bluegold Research

There is currently a double deficit in natural gas inventories – i.e., the amount of natural gas in the underground storage is smaller compared to the previous year and also compared to the 5-year average. We expect this double deficit to continue expanding, but not without temporary setbacks. Next two EIA reports are expected to confirm the expansion of the 5-year average deficit in storage by a total of only 9 bcf and the expansion of the annual deficit by a total of almost 100 bcf.

Further down the road, we expect double deficit in storage to continue expanding, but the pace will differ. Annual deficit will grow much faster. As you can see from the chart below, the most drastic change in inventories (relative to the 5-year average) took place between December 8, 2017, and January 19, 2018. At this moment in time, we expect no significant change in this particular measure for the next five weeks. However, we project that annual deficit will continue to grow from -503 bcf today to -750 bcf for the week ending March 16 and possibly beyond.

Source: Bluegold Research

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.