This report covers the week ending April 20, 2018. Daily data for April 14 to April 19 is estimated. Daily data for April 20 is forecast. To read last week’s report, please click here.
Total Supply/Demand Balance
We estimate that aggregate demand for American natural gas (consumption + exports) totaled around 580 bcf this week (mostly flat w-o-w, but up as much as 35.0% y-o-y). The deviation from the norm stayed positive and increased from +32.0% to +38.0% (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. Cold weather conditions persisted across the Lower-48 states – especially, in the Central, Midwest and Northeast part of the country. However, the number of heating degree days was also relatively high in the Southeast and Southwest. Total exports jumped by 7% w-o-w, primarily due to stronger pipeline flows into Canada, but because of healthy LNG demand. According to Marine Traffic data, no less than six LNG tankers (total natural gas carrying capacity of 20 bcf) departed from Sabine Pass over the past seven days. Flows into Cove Point liquefaction plant averaged 400 MMcf/day. In annual terms, total exports were up almost 50%.
*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 46 consecutive weeks now. While daily output is up only about 1.2 bcf since last December, annual growth rate is still accelerating on base effects. Currently, we estimate that dry gas production will average 79.4 bcf/d in April, 79.5 bcf/d in May, and 79.7 bcf/d in June. Recent pipeline maintenance made us revise the production rate lower. The aggregate supply of natural gas (production + imports) averaged just around 87.7 bcf per day for the week ending April 20 (up 11.0% y-o-y). Overall, total supply/demand (SD) balance should be positive at around 36 bcf. It is the 5th positive SD balance this year. The volume is some 9 bcf smaller than a week ago, but as much as 75 bcf below 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 bullish for natural gas prices, since it is below last year’s level and also below the historical norm. However, the market is forward-looking, and price is in large part a function of a 2-week weather forecast. Furthermore, as the market begins to look for an equilibrium price necessary to fill in the underground storage before next winter, the trends in the Electric Power (coal-to-gas-switching, power burn and other indicators) play a major role in determining trading bias. 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).
This Thursday, the EIA reported a draw of 36 bcf. It was a huge bullish surprise and was largely the result of statistical recalculation. Some natural gas storage operators have reported net withdrawals from base gas, beginning with the week ending April 6, 2018. The cumulative net withdrawals of base gas were treated as negative working gas stocks and were reflected in the working gas inventories. As a result, a small portion of last week's reported net change included flows from base gas. In other words, the change in storage that was reported on Thursday would have been smaller, had previous changes were not underestimated in the first place. Either way, total storage now stands at 1,299 bcf, which is 449 bcf (or 25.69%) below 5-year average for this time of the year. Currently, we expect EIA to report a draw of 7 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 +40 bcf over the next three reports. Natural gas inventories' deviation from 5-year average should expand from -25.69% today to -27.25% for the week ending May 4.
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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.