January 17, 2019 Natural Gas Storage Report: So Far The Weather Is Helping The Bulls

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

This Thursday, we expect EIA to report 2,528 bcf of working gas in storage for the week ending January 11.

We anticipate to see a draw of 86 bcf, which is 122 bcf smaller than a year ago and 132 bcf smaller vs. 5-year average.

Weather is helping the bulls – annual storage surplus will only hold for a few days.

Dry gas production has failed to set a new all-time high for 47 consecutive days now.

THE WEATHER

Last week, the number of heating degree-days (HDDs) dropped by 6.0% w-o-w. We estimate that total energy demand (as measured in total degree-days – TDDs) was at least 10% below last year’s level.

This week, the weather conditions have cooled down significantly across the country. Specifically, heating demand increased most noticeably in the Midwest, Northeast and Southeast parts of the U.S. We estimate that the number of HDDs will rise by around 19.0% w-o-w in the week ending January 18. Still, total energy demand (measured in TDDs) should be below last year’s level by as much as 16%. Next week, however, is expected to be a lot different. Weather conditions are expected to cool down significantly in the week ending January 25. The number of HDDs is currently projected to jump by another 20.0% w-o-w. In annual terms, the increase will be even more violent (+45%), while the deviation from the norm would be close to +15% (see the chart below).

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 (January 16-January 31). Total demand is expected to average 118.0 bcf/d over the next 15 days (some 20.0% above 5-year average), supported (in part) by strong exports – specifically into Mexico – but also by robust LNG sales.

Natural gas consumption is also supported by a number of non-degree-day factors such as higher nuclear outages. As of this Wednesday, there were a total of 4,200 MW of nuclear power generation offline (+100 MW from Tuesday and +13% vs. 5-year average). Although the level of nuclear outages has been declining gradually for the past several months, it still remains above the historical norm. Our subscribers receive daily (early morning) update on all the market variables, including nuclear outages. Other non-degree-day factors, such as coal-to-gas switching is also starting to provide an additional boost to consumption.

Table 1: Natural Gas Market Variables (deviation vs. 5-year average): weekly averages (MMcf)

natural gas fundamentals

Source: Bluegold Research estimates and calculations; *Exports - include actual LNG exports (vessels), but excludes liquefaction flows; **Total Demand - excludes LNG vessels, but includes liquefaction flows; colors indicate the notional effect on the price: green is bullish, while red is bearish.

STORAGE

U.S. Energy Information Administration should report a relatively smaller change in natural gas storage this week compared to the week prior. We anticipate to see a draw of 86 bcf (2 bcf larger than the comparable figure in the ICE’s latest report for the EIW-US EIA Financial Weekly Index, 122 bcf smaller than a year ago and 132 bcf smaller 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 114 bcf and the contraction of annual deficit by a total of 168 bcf. In fact, we expect annual storage deficit to briefly turn into surplus in the week ending January 18. However, the following week, inventories will return into "annual deficit" and will stay there for the foreseeable future.

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.