The U.S. Energy Information Administration has recently released its natural gas monthly statistics for December 2017. In this article, we will briefly review its consumption and exports figures, then look at our latest estimates for January and February and conclude with our forecast for March, April and May.
Aggregate demand (national consumption + exports) for American natural gas was up 8.0% y-o-y in December 2017. Consumption increased by 7.0% as weather was relatively colder (there were at least 5.0% more heating-degree days in December 2017 than in December 2016). External demand also remained strong, with exports surging by almost 20.0% y-o-y due to robust pipeline inflows into Mexico and record high LNG sales. Indeed, based on Marine Traffic data, we estimate that Sabine Pass served at least 26 tankers (total natural gas carrying capacity of 80+ bcf). Strong exports growth and an increase in national consumption ensured that the growth in total demand stayed positive. In fact, on an annualized basis, aggregate demand has not posted a single negative growth figure since January 2010 (see the chart below). Indeed, total demand has been growing faster than consumption since May 2015, pointing to the rising weight of exports within the overall demand structure. On the chart below, you can clearly see how the growth rates in consumption and exports have diverged over the past year or so – while consumption has been falling lately, exports were rising and total demand growth, on balance, stayed positive, although it has slowed over the past months. Previously, however, total demand growth was almost entirely driven by national consumption.
Source: EIA, Bluegold Research estimates and calculations
Pipeline and LNG exports combined almost reached 300 bcf in December 2017, which is a new all-time record (note, that previous all-time record was recorded in November 2017 – see the chart below). The volume of total exports is now equivalent to 9.70% of national natural gas consumption on a monthly basis. However, on a 12-month average basis, exports now equate to more than 11.90% of national consumption and its share in the aggregate demand structure has more than doubled over the past two and a half years.
Source: EIA, Bluegold Research estimates and calculations
Exports remain the fastest growing source of demand for American natural gas. While total demand (12-month average) increased by 17.60% (from January 2012 to December 2017), exports expanded by 111.00% over the same period. In fact, exports have already surpassed “Other” category in the overall demand mix and is now just as significant in weight as U.S. commercial users (see the charts below).
Source: EIA, Bluegold Research estimates and calculations *Other category includes lease, plant and vehicle fuels, as well as pipeline and distribution use.
Other fast-growing sources of demand include Electric Power/power burn (+20.40% since January 2012) and industrial consumption (+12.90%). Note also that since January 2012, residential consumption of natural gas actually declined by 2.60% and remains below its long-term average of 400,000 MMcf.
Source: EIA, Bluegold Research estimates and calculations
Estimates and Forecast
After rising by 7.0% y-o-y in December, we estimate that consumption then expanded by 15.0% y-o-y in January 2018, on the back of stronger heating demand, but also because of base effects. Annual growth rate in February stayed unchanged at 15% for the same reasons. Currently, we expect natural gas consumption in the U.S. to remain quite strong in both relative and absolute terms.
Under the latest weather forecasts, we anticipate to see an 8.0% annual growth rate in March 2018, followed by a stronger 17.0% growth rate in April and a slower, but no less significant, growth rate of 7.0% in May (see the chart below). Please note that there is a large degree of uncertainty to that forecast, as weather models remain volatile and can generate sporadic changes in the number of heating- and cooling-degree-days (HDDs and CDDs). Also, please note these two-digit growth figures are partly the result of low comparison base from previous year. It is important to remember that changes in HDDs have 3x stronger effect on natural gas consumption than changes in CDDs, so monitoring weather forecasts on a daily basis is absolutely vital. We update our forecasts on a daily basis. If you wish to receive a regular update on key natural gas variables - production, consumption, exports and imports – consider signing up for our exclusive content (see the link below).
Source: EIA, Bluegold Research estimates and calculations
Exports should continue to expand rapidly. Currently, we expect exports to total 10.4, 9.8 and 9.9 bcf per day in March, April and May, respectively (see the chart above). We estimate that annual growth was probably just around 14% in January and 17% in February. Please note that our LNG exports forecast is based on vessels tracking system, not on the liquefaction flows. Therefore, it is likely to be revised higher.
Source: EIA, Bluegold Research estimates and calculations
Source: EIA, Bluegold Research estimates and calculations
Total Balance
What about supply? After all, it is not the demand which is driving the price, but the interaction between demand and supply. No doubt, dry gas production is growing fast. However, we estimate that in March and April, total supply (production + imports) will still be growing at a slower annual pace than total demand (see the chart below - white curve indicates annual change in supply/demand balance).
Source: EIA, Bluegold Research estimates and calculations
However, our preliminary forecast indicates that in May this year, total natural gas supply/demand balance (SD balance) will be looser relative to 2017. In other words, we currently estimate that in May 2018, natural gas supply will be growing at a faster annual pace than total demand and SD balance is currently projected to reduce annual deficit at an average rate of 2 bcf per day.
Overall, we still expect SD balance to be tighter vs. 2017 over the next two months and therefore we still expect annual storage deficit to expand until the end of April.
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