March 9 Natural Gas Weekly: Storage Forecast And Update On Supply/Demand Balance

Summary

• Total demand for American natural gas is up 15.0% y-o-y to 650 bcf.
• Total natural gas supply is up 8.0% y-o-y to 86.2 bcf per day.
• We currently expect EIA to report a draw of 91 bcf next week.

This report covers the week ending March 9, 2018. Daily data for March 3 to March 8 is estimated. Daily data for March 9 is forecast.

Total Supply/Demand Balance

We estimate that aggregate demand for American natural gas (consumption + exports) totaled around 650 bcf this week (up 6.0% w-o-w and up as much as 15.0% y-o-y). The deviation from the norm stayed positive and increased from +3.0% to +14.0% (see the chart below). According to our calculations, aggregate demand for U.S. natural gas (on a weekly basis) has been above 9-year norm since February 24, 2017. This week, colder weather returned and the number of heating-degree-days (HDDs) jumped by no less than 15% w-o-w, while the number of cooling-degree-days (CDDs) dropped. Heating demand was especially pronounced in the Southeast part of the country, where we have witnessed the most rapid increase in HDDs. Total exports dropped 4.0% w-o-w, primarily due to weaker pipeline flows into Canada. However, the weekly decline is also partly exacerbated by a very high comparison base from previous week. According to Marine Traffic data, no less than four LNG tankers (total natural gas carrying capacity of 13 bcf) departed from Sabine Pass over the past seven days. In annual terms, total exports were up 21%.

* norm defined as simple average over the last nine years. Source: Bluegold Research

We estimate that dry gas production has been expanding in annual terms for 40 consecutive weeks now. However, the growth rate has slowed down lately partly due to temporary pipeline maintenance and partly due to production freeze-offs in Bakken region. Currently, we estimate that dry gas production will average 78.5 bcf/day in March, 78.9 bcf/day in April, and 79.1 bcf/day in May. The aggregate supply of natural gas (production + imports) averaged just around 86.2 bcf per day for the week ending March 2 (up 8.0% y-o-y). Overall, total supply/demand balance should be negative at around -45 bcf. It is the 14th negative physical balance this withdrawal season. This negative volume is some 44 bcf larger than a week ago, but as much as 23 bcf above 5-year average for this time of the year (see the chart below).

Note that the total Supply-Demand Balance does not equal storage flows. Source: Bluegold Research

In absolute terms, and with all other things being equal, this kind of volume is neutral for natural gas prices, since it is below last year's level, but above the historical norm. However, the market is forward-looking and price is in large part a function of a 2-week weather forecast. Furthermore, because April is now the prompt month contract, the weather is actually starting to play a secondary role. The latest trends in the Electric Power sector are becoming more important. At Bluegold Research, we provide a daily update on the weather forecast as well as an update on 8-week storage outlook and end-of-season storage estimates + a weekly update on the latest trends in the Electric Power sector. Consider signing up, if interested (see the link below).

Storage

This Thursday, the EIA reported a draw of 57 bcf. It was only 1 bcf larger than our projection of 56 bcf. Total storage now stands at 1,625 bcf, which is 300 bcf (or 15.58%) below 5-year average for this time of the year.

Currently, we expect EIA to report a draw of 91 bcf next week (final estimate will be released next Wednesday). Our latest projection is smaller than the comparable figure in the ICE's latest report for EII-US EIA Financial Weekly Index. Overall, at this point in time, we expect storage flows to average -79 bcf over the next three reports. Natural gas inventories deviation from 5-year average should expand from -15.58% today to -19.66% for the week ending March 23.

Analyst’s 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.

Comments

[wes.bridgeman]

Amazing as the Northeast digs out from a heavy snow, it looks like they get another storm coming in early next week.

[A W 2017]

RELENTLESS demand expansion and storage withdrawals that are knocking on triple digits once again.

[LuvMyBonds]

-and another Northeaster has just hit the northeast US.

[Steve Frechette]

And yet prices can't get any traction to the upside!!

UGAZ back under $60 pre-market.

@AW, the only relentless thing happening for natural gas in 2018 is production expansion.

Demand from Mexico and LNG exports are non events for 2018, maybe 2019 will be different.

Keep in mind power burn is price sensitive and you can't use up the excess gas unless you keep prices below $3. We learned in 2016-2017, coal resources come online when gas prices climb over ~$3.

Good luck to all!

[A W 2017]

Relentless = 15% increase in natural gas demand year-over-year. Production growth is at a lower rate than this over the same time frame.

Natural gas is one of the very few commodities with a decades-long demand growth profile.