April 5 Natural Gas Storage Report: Our Expectations And Forecast

Summary

• This Thursday, we expect EIA to report 1,359 bcf of working gas in storage for the week ending March 30.
• We anticipate to see a draw of 24 bcf, which is 20 bcf larger than a year ago and 4 bcf smaller vs 5-year average.
• Annual storage deficit is expected to continue expanding until the end of April, 2018.

Last Week and This Week

U.S. Energy Information Administration should report a smaller change in natural gas storage this week compared to the week prior. We anticipate to see a draw of 24 bcf (1 bcf larger than the comparable figure in ICE's latest report for the EII-U.S. EIA Financial Weekly Index, 20 bcf larger than a year ago and 4 bcf smaller vs 5-year average for this time of the year).

Last week, the number of total degree-days (TDDs) continued to decline mostly due to seasonal factors. We estimate that TDDs dropped by 15.0% w-o-w, but we still some 25% higher than a year ago. The number of heating-degree days (HDDs) declined by 17%, while the number of cooling-degree days (CDDs) almost doubled (from a very low base). Heating demand was above historical average in the Central and Midwest parts of the country, while cooling demand was mostly above average in the South. This week, the weather continued to get warmer in the South and colder in the North and we believe that the number of TDDs increased by 8% (see the chart below). The presence of both heating and cooling demand in different parts of the United States is complicating storage forecasting process.

Next Week

The latest numerical weather prediction models are returning some mixed results. The latest ECMWF extended-range model projected above normal TDDs for the week ending April 13 and mostly normal TDDs in the following four weeks (April 20 – May 11). CFSv2 long-range model is projecting above normal HDDs in April and above normal CDDs in May. ECMWF 12z Ensemble and GFS 12z Ensemble mid-range models are disagreeing completely about the intensity of cold over the next 15 days. Both models are showing above normal HDDs, but GFS is about twice as bullish as ECMWF. Overall, our analysis shows that next week, the number of TDDs will remain above, but will drop by 4.0% w-o-w (see the char below). Energy demand for heating is expected to drop by 5.0%, while energy demand for cooling is expected to increase by 7.0%.

Please note that the standard mid-term numerical weather prediction systems are already covering the period up to April 19. One should expect heating demand to subside and cooling demand to increase purely on seasonal grounds. Therefore, overall, energy demand is declining, but the rate of decline is relatively slow compared to previous years. Also, don’t forget that changes in CDDs will soon start have a disproportionately stronger effect on consumption than changes in HDDs.

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 previous year and also compared to 5-year average. Next two EIA reports are expected to confirm the expansion of 5-year average deficit in storage by a total of 20 bcf and the expansion of annual deficit by a total of 44 bcf.

At this moment in time, we expect double deficit in storage to continue to grow until the end of April, 2018. Also, at this point in time, we believe that annual deficit will expand faster (compared to 5-year average deficit), but will also shrink faster in May and June due to base effects. In the short-term however, we expect both deficits to grow. Currently, we project that by Apr. 20, annual deficit will expand by 140 bcf, while 5-year average deficit will expand by 96 bcf over the same period.

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.