This report covers the week ending May 4, 2018. Daily data for April 28 to May 3 is estimated. Daily data for May 4 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 470 bcf this week (down 5% w-o-w, but up 3.0% y-o-y). The deviation from the norm stayed positive but dropped from +19.0% to +15.0% (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. The weather conditions are getting warmer. We estimate that the number of heating degree-days will some 40% lower this week compared to the week prior. At the same time, cooling demand is starting to pick up - especially, in the Southeast and Southwest part of the United States. The latest models show above normal amount of cooling degree-days over the next 15 days.
Total exports were mostly flat w-o-w as reduced pipeline inflows into Canada were essentially offset by stronger flows to liquefaction. According to Marine Traffic data, no less than six LNG tankers (total natural gas carrying capacity of 19 bcf) departed from Sabine Pass over the past seven days. Flows into Cove Point liquefaction plant averaged 600 MMcf/day. In annual terms, total exports were up 30.0%.
* 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 48 consecutive weeks now. While daily output is up only about 1.5 bcf since last December, annual growth rate is still pretty strong due to base effects. Currently, we estimate that dry gas production will average 80.0 bcf/d in May, 80.1 bcf/d in June, and 79.9 bcf/d in July. The aggregate supply of natural gas (production + imports) averaged just around 87.9 bcf per day for the week ending May 4 (up 11.0% y-o-y). Overall, total supply/demand (SD) balance should be positive at around 145 bcf. It is the 7th positive SD balance this year. The volume is some 20 bcf larger than a week ago and almost 30 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 bearish for natural gas prices, since it is above last year's level and also 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, 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 a 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 an injection of 62 bcf. Total storage now stands at 1,343 bcf, which is 534 bcf (or 28.45%) below 5-year average for this time of the year. Currently, we expect EIA to report an injection 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 +99 bcf over the next three reports. Natural gas inventories deviation from 5-year average should narrow from -28.45% today to -22.98% for the week ending May 18.
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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.