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April 19 Natural Gas Storage Report: Our Expectations And Forecast

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Includes: BOIL, DCNG, DGAZ, FCG, GASX, KOLD, UGAZ, UNG, UNL
by: Bluegold Research
Summary

This Thursday, we expect EIA to report 1,311 bcf of working gas in storage for the week ending April 13.

We anticipate to see a draw of 24 bcf, which is 71 bcf larger than a year ago and 62 bcf larger vs. 5-year average.

Annual storage deficit is expected to continue expanding until the end of April 2018, but should start shrinking in May.

However, 5-year average deficit is expected to remain relatively unchanged for another two months (at least).

Last Week and This Week

U.S. Energy Information Administration should report a larger change in natural gas storage this week compared to the week prior. We anticipate to see a draw of 24 bcf (2 bcf smaller than the comparable figure in ICE's latest report for the EII-U.S. EIA Financial Weekly Index, but 71 bcf larger than a year ago and 62 bcf larger vs. 5-year average for this time of the year).

Last week, the number of total degree-days (TDDs) dropped by around 9%, mostly due to seasonal decline in the number of heating-degree days (HDDs). Still, energy demand for heating stayed above the norm and was twice as large as last year. Conversely, cooling degree-days (CDDs) jumped by more than 20%, but from a very low base. Heating demand was especially pronounced in Midwest and Northeast parts of the country. Cooling demand started to pick up in Southeast and Southwest, but remains below the norm. The presence of both heating and cooling demand in different parts of the United States is complicating storage forecasting process.

This week, cold weather returned and we estimate that the number of TDDs should rise by about 5% w-o-w, with cooling demand falling by as much as 30%. Indeed, it is possible that we may see another minor draw from natural gas storage for the week ending April 20, which would be quite an unprecedented event. Usually, during this time of the year, the market is already witnessing some healthy 50+ bcf storage injections.

Next Week

The latest numerical weather prediction models are returning some mixed results. ECMWF extended-range model projected above normal HDDs in the week ending April 27, but normal or above normal CDDs in the following four weeks (May 4 – May 25).

CFSv2 long-range model is projecting above normal HDDs in April and just normal CDDs in May. The latest ECMWF 00z Ensemble and GFS 12z Ensemble mid-range models are both projecting above normal HDDs to persist until April 26 – April 27. Both models have also projected normal-to-below-normal CDDs from April 27 to May 3. Overall, our analysis shows that next week, the number of TDDs will drop by no less than 35.0% w-o-w (see the chart below). Energy demand for heating is expected to drop by almost 40%, while energy demand for cooling is expected to surge by 30%, but from a very low base.

Please note that the standard mid-term numerical weather prediction systems are already covering the period up to May 3. 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 are starting to 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 124 bcf and the expansion of annual deficit by a total of 144 bcf.

At this moment in time, we expect double deficit in storage to continue to grow until the end of April 2018. In May, however, we expect annual deficit to start shrinking, unlike 5-year average deficit, which is expected to remain largely unchanged. Currently, we project that by May 4, annual deficit will expand by 132 bcf, while 5-year average deficit will expand by 139 bcf over the same period.

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.