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October 19 Natural Gas Weekly: Injection Season Is Likely To End In The 2nd Week Of November

by: Bluegold Research

Total demand for American natural gas is up 15.0% y-o-y to 76.0 bcf per day.

Total natural gas supply is up 12.0% y-o-y to 93.0 bcf per day.

The number of nation-wide heating-degree days has more than doubled in the week ending October 19.

We currently expect EIA to report an injection of 55 bcf next week.

Our official EOS storage projection (for the week ending Nov. 2) is 3,158 bcf, but we also currently expect a minor injection for the week ending Nov. 9.

This report covers the week ending October 19, 2018. Daily data for October 14 to October 18 is estimated. Daily data for October 19 is forecast.

Total Supply/Demand Balance

We estimate that aggregate demand for American natural gas (consumption + exports) totaled around 530 bcf for the week ending October 19 (up 3.7% w-o-w and up as much as 15.0% y-o-y). The deviation from the norm stayed positive but increased marginally from +27% to +29% (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 cooled down significantly across the country - but particularly in the Central, Midwest, and Southwest parts of the U.S. We estimate that the number of nation-wide heating degree-days (HDDs) has more than doubled in the week ending October 19, while the number of cooling degree-days (CDDs) dropped by 50% w-o-w to the point where they are no longer having any meaningful effect on consumption. 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) should be above last year's level by no less than 60%.

Total exports dropped by 6% w-o-w, mostly due to weaker LNG sales (because of the base effect). According to Marine Traffic data, Sabine Pass served only four LNG tankers this week (total natural gas carrying capacity of 13 bcf), whereas last week, it served six vessels (total carrying capacity of 20 bcf). Despite the fact that flows to liquefaction at Cove Point have resumed (after a three-week maintenance), the terminal has not yet supplied any vessels since mid-September.

* 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 72 consecutive weeks now. However, the daily rate of output has been unable to set a new all-time high for 24 days now. Currently, we project that dry gas production will average 88.2 bcf/d in October, 87.4 bcf/d in November, and 87.2 bcf/d in December. The aggregate supply of natural gas (production + imports) averaged around 93.0 bcf per day for the week ending October 19 (up 12.0% y-o-y, but down 0.3% w-o-w). Overall, total unadjusted supply/demand balance should be positive at around 119 bcf. The volume is some 20 bcf smaller than a week ago and 10 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 the simplest of terms, and with all other things being equal, this kind of volume is neutral for natural gas prices, since it is above last year's level, but also below 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 and end-of-season storage expectations + short-term changes in non-degree day factors, such as nuclear outages, wind speeds, and hydro inflows. 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 + early morning update on nuclear outages. 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).

Storage Outlook

Today, the EIA reported an injection of 81 bcf, mostly in line with market consensus, but three bcf below our estimate of +84 bcf. Total storage now stands at 3,037 bcf, which is 605 bcf (or 16.61%) below 5-year average for this time of the year. Currently, we expect EIA to report an injection of 55 bcf next week (final estimate will be released on Wednesday). 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 -605 bcf (-16.61%) today to -671 bcf (-17.52%) for the week ending November 2.

Official end of the injection season is usually the last week of October or the first week of November. This year, the injection season will officially end on November 2, 2018. Currently, we expect to see 3,158 bcf of natural gas in storage at that time. However, we also currently expect a minor injection for the week ending November 9, so in reality, the injection season will last for one more week, and we currently expect it to finish with 3,169 bcf of natural gas in storage for the week ending November 9, 2018. The first draw from storage is expected in the week ending November 16.

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.