December 7 Natural Gas Storage Report: Total Demand Curve Is Trending Down

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

This Friday, we expect EIA to report 2,990 bcf of working gas in storage for the week ending November 30.

We anticipate to see a draw of 64 bcf, which is 61 bcf larger than a year ago and 6 bcf larger vs. 5-year average.

Total demand is trending down, and annual storage deficit is projected to start shrinking next week.

Should production and weather forecasts remain largely unchanged, we expect annual storage deficit to narrow to just -65 bcf by mid-February, 2019 (scroll down to see a detailed chart).

The Weather

Last week, the number of total degree-days (TDDs) declined by around 4.0% w-o-w, as heating demand weakened across the U.S. – but particularly, in the Midwest. However, we estimate that total energy demand (as measured in total degree-days – TDDs) was at least 30% above last year’s level.

This week, the weather conditions cooled down. We estimate that the number of HDDs will rise by around 11.0% w-o-w in the week ending December 7. Total energy demand (measured in TDDs) should be no less than 10% above last year’s level. Next week, the weather conditions are expected to cool down again, but to a lesser extent. The number of HDDs is currently projected to increase by around 7.0% w-o-w for the week ending December 14 (see the chart below), but at the same time, total energy demand will drop by 5.0% y-o-y.

Source: Bluegold Research estimates and calculations

Total Demand

On average, the latest numerical weather prediction models are showing above normal HDDs and TDDs over the next 15 days (December 5-December 20). However, HDDs are projected to drop below the norm on Dec. 13. Total demand is expected to average 101.7 bcf/d over the next 15 days (some 9.5% above 5-year average), supported (in part) by strong exports – specifically, into Mexico – but also by strong LNG sales.

Natural gas consumption is also supported by a number of non-degree-day factors such as higher nuclear outages. As of Wednesday, there were a total of 7,700 MW of nuclear power generation offline (-500 MW from Tuesday, but +18% vs 5-year average). Although the level of nuclear outages is declining, it still remains above the historical norm. Our subscribers receive daily (early morning) update on all the market variables, including nuclear outages. Consider singing up, if interested (see the link below). Other non-degree-day factors, such as coal-to-gas switching is no longer providing any additional boost to consumption.

While in absolute terms, total demand remains very strong (above 100 bcf/d), it is projected to trend down in relative terms until at least Dec. 16. At the same time, total supply curve is projected to remain largely unchanged (see the chart below – please note, that this chart is updated for our subscribers two times per day, and the forecast is extended by one day every 24 hours). This disparity between total demand and total supply curves is resulting in smaller storage draws relative to historical norm.

Source: Bluegold Research estimates and calculations

Storage

U.S. Energy Information Administration should report a larger change in natural gas storage this week compared to the week prior. We anticipate to see a draw of 64 bcf (5 bcf larger than the comparable figure in the ICE’s latest report for the EIW-US EIA Financial Weekly Index, 61 bcf larger than a year ago and 6 bcf larger vs 5-year average for this time of the year).

There is currently a double deficit in natural gas inventories – i.e., the amount of natural gas in the underground storage is smaller compared to previous year and also compared to 5-year average. Next three EIA reports are expected to confirm the contraction of 5-year average deficit by a total of 3 bcf and the expansion of annual deficit by a total of 15 bcf.

Further ahead, we currently anticipate seeing smaller draws relative to historical norms. Indeed, should production and weather forecasts remain largely unchanged, we expect annual storage deficit to narrow to just -65 bcf by mid-February, 2019 (see the chart below - please note that this chart is updated for our subscribers every day and the forecast is extended by one week every Friday).

Source: Bluegold Research estimates and calculations

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.