August 24 Natural Gas Weekly: Supply Keeps Marching Higher, While Demand Is Heading Towards A Seasonal Low.

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

Total demand for American natural gas is up 3.0% y-o-y to 71.7 bcf;

Total natural gas supply is up 13.0% y-o-y to 91.4 bcf per day;

We currently expect EIA to report an injection of 69 bcf next week;

This report covers the week ending August 24, 2018.

TOTAL SUPPLY/DEMAND BALANCE

We estimate that aggregate demand for American natural gas (consumption + exports) totaled around 502 bcf last week (up 3.0% y-o-y, but down 5.5% w-o-w). The deviation from the norm stayed positive, but declined slightly: from +23% to +17.0% (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 cooled down across the U.S., but the drop in cooling demand was especially pronounced in the Midwest, Northeast and Southeast parts of the country. We estimate that the number of cooling degree-days (CDDs) dropped by no less than 13.0% w-o-w, for the week ending August 24. Total energy demand (measured in total degree-days) was also below last year’s level, but only by around 1%. Seasonal trends call for a declining number of CDDs and TDDs. Natural gas consumption should hit a trough in mid-September or early October.

Total exports dropped by 9% w-o-w, mostly due to weaker LNG demand. According to Marine Traffic data, Sabine Pass and Cove Point together served only 5 LNG tankers this week (total natural gas carrying capacity 17 bcf). In annual terms, total exports were up 27.0%.

* 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 64 consecutive weeks now. We estimate that dry gas production will average 83.4 bcf/d in August, 83.8 bcf/d in September and 84.4 bcf/d in October. The aggregate supply of natural gas (production + imports) averaged around 91.4 bcf per day for the week ending August 24 (up 13.0% y-o-y, but mostly flat w-o-w). Overall, total supply/demand balance should be positive at around 140 bcf. The volume is some 30 bcf larger than a week ago and as much as 38 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 the simplest of 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 this week's data is, to some extent, irrelevant for traders. The price is often a function of a 2-week weather forecast, but as we are moving into the shoulder season, other factors start to play an important role – notably, end-of-season storage outlook and winter forecast. At Bluegold Research, we provide a daily (early morning and afternoon) update on the weather forecast as well as a full update on the end-of-season storage outlook (including for March, 2019). In addition, we publish the latest results of the extended-range ECMWF model (twice per week). Consider singing up, if interested (see the link below).

STORAGE

This Thursday, the EIA reported an injection of 48 bcf. Total storage now stands at 2,435 bcf, which is 599 bcf (or 19.74%) below 5-year average for this time of the year. Currently, we expect EIA to report an injection of 69 bcf next week (final estimate will be released on Wednesday). Overall, at this point in time, we expect storage flows to average +72 bcf over the next three reports. Natural gas inventories deviation from 5-year average should contract from -599 bcf (-19.74%) today to -582 bcf (-18.01%) for the week ending September 7.

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.