This report covers the week ending October 5, 2018. Daily data for September 29 to October 4 is estimated. Daily data for October 5 is forecast.
Total Supply/Demand Balance
We estimate that aggregate demand for American natural gas (consumption + exports) totaled around 496 bcf for the week ending October 5 (up 1.0% w-o-w and up as much as 10.0% y-o-y). The deviation from the norm stayed positive and actually increased from +22 to +26% (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.
Last week, the weather conditions heated up - particularly in the Eastern part of the U.S. but heating demand also appeared in the Northwest. We estimate that the number of nation-wide cooling degree-days (CDDs) increased by no less than 9.0% w-o-w, for the week ending October 5, while the number of heating degree-days (HDDs) rose by 5% w-o-w. In addition, non-degree-day factors - such as higher nuclear outages - spurred extra consumption in the Electric Power sector. Overall, total energy demand (measured in total degree-days) was above last year's level by around 16%.
Total exports dropped by 9% w-o-w, mostly due to weaker LNG sales, but pipeline outflows into Canada were also down substantially. According to Marine Traffic data, Sabine Pass served only three LNG tankers last week (total natural gas carrying capacity of 11 bcf). Flows to liquefaction at Cove Point have remained close to zero for the past two weeks due to planned maintenance, which should end in mid-October. In annual terms, total exports were up just 5.0%.
* 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 70 consecutive weeks now. Currently, we project that dry gas production will average 86.9 bcf/d in October, 86.2 bcf/d in November, and 85.9 bcf/d in December. The aggregate supply of natural gas (production + imports) averaged around 93.6 bcf per day for the week ending October 5 (up 14.0% y-o-y, but down 0.8% w-o-w). Overall, total unadjusted supply/demand balance should be positive at around 160 bcf. The volume is some 10 bcf smaller than a week ago but 24 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. Indeed, this week's total balance is the largest we have this year. 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 because we are also in the midst of a shoulder season, other factors play an important role - notably, end-of-season (EOS) 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. In addition, we publish the latest results of the extended-range ECMWF model (twice per week). Consider signing up, if interested (see the link below).
This Thursday, the EIA reported an injection of 98 bcf, which was 3 bcf above our estimate of 95 bcf. Total storage now stands at 2,866 bcf, which is 607 bcf (or 17.48%) 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 on Wednesday). Overall, at this point in time, we expect storage flows to average +83 bcf over the next three reports. Natural gas inventories deviation from 5-year average should shrink from -607 bcf (-17.48%) today to -605 bcf (-16.27%) for the week ending October 19.
Further down the road, we expect double storage deficit (relative to 5-year average and relative to previous year) to continue shrinking. Indeed, our latest analysis indicates that annual storage deficit will turn into surplus by March 2019. Please note that it is a long-term forecast and is therefore subject to high volatility and later revisions, but under the latest production forecast and under the latest long-term weather forecast (CFSv2 model), we expect to see 1,494 bcf of natural gas in storage by the end of March 2019.
Thank you for reading our weekly report. We also write a daily update of our forecast for key natural gas variables: weather, production, consumption, exports, imports, and storage. Interested in getting this daily update? Sign up for Natural Gas Fundamentals, our Marketplace service, to get the most critical natural gas data. In addition, every Sunday, we publish three special reports: "Trends in the U.S. Electric Power sector", "Trends in Global LNG Market", "Global Oil Products Inventories".
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.