Natural Gas Weekly: Annual Storage Deficit To Reach 500 BCF If Weather Cooperates

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

Total demand for American natural gas is up 9.0% w-o-w to 108.2 bcf per day.

Total natural gas supply is flat at 96.6 bcf per day.

We currently expect EIA to report a draw of 152 bcf next week.

Weather models are very bullish (so far).

Aggregate demand is currently projected to jump by 20% in the week ending January 25.

This report covers the week ending January 18, 2019. Daily data for January 12 to January 17 is estimated. Daily data for January 18 is forecast.

Total Supply/Demand Balance

We estimate that aggregate demand for American natural gas (consumption + exports) totaled around 760 bcf for the week ending January 18 (up 9.0% w-o-w, but down 9.0% y-o-y). The deviation from the norm rose sharply from -3.0% to +10.0% (see the chart below).

This week, the weather conditions have cooled down across the country - but particularly in the Northeast and Southeast parts of the U.S. We estimate that the number of nation-wide heating degree-days (HDDs) will increase by 19.0% w-o-w in the week ending January 18. At the same time, non-degree-day factors are spurring some extra consumption - particularly in the Electric Power sector. The most important four non-degree-day factors that we are looking at are: the spread between natural gas and coal, wind speeds, hydro inflows, and nuclear outages. Specifically, lower ng/coal spreads have already added some 2.0 bcf/d of potential coal-to-gas-switching (compared to December average), while the level of nuclear outages has remained above the norm. According to U.S. Nuclear Regulatory Commission, nuclear outages averaged 4,100 MW this week, which was 14% above 5-year average. Overall, however, total energy demand (measured in total degree-days) should be below last year's level by no less than 15%.

Total exports rose by 3.4% w-o-w - primarily, due to strong pipeline exports into Canada and robust LNG sales. According to Marine Traffic, U.S. LNG export terminals (Sabine Pass, Cove Point, and Corpus Christi) served eight LNG vessels with total natural gas capacity of 28 bcf (4 bcf/d). At the same time, total flows to liquefaction averaged 4.7 bcf/d.

* norm defined as simple average over the last five years. Source: Bluegold Research

We estimate that dry gas production has been expanding in annual terms for 85 consecutive weeks now. Currently, we project that dry gas production will average 88.4 bcf/d in January, 88.5 bcf/d in February, and 88.6 bcf/d in March. The aggregate supply of natural gas (production + imports) averaged around 96.6 bcf per day for the week ending January 18 (flat w-o-w, but up 14.0% y-o-y). Overall, total unadjusted supply/demand balance should be negative at around -11.7 bcf/d.

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 statistics is bearish for natural gas prices since it is above last year's level and above the historical norm. However, the market is forward-looking and this week's data is already 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).

Weather And Storage

The latest 00z short-range weather models project an average of 32.4 HDDs per day (4.0 above the norm) over the next 15 days (Jan. 18 - Feb. 2). The change from Thursday is bearish (24h change is -0.8). The models also project an average of 0.0 CDDs per day over the next 15 days (0.1 below the norm). The change from Thursday is neutral (24h change is 0.0). Seasonal trends: projected HDDs should be declining slowly; projected CDDs should be rising slowly.

The latest 00z short-range weather models projected an average of 29.5 HDDs per day (0.7 above the norm) over the next 15 days (Jan. 11 - Jan. 26). The change from Thursday is bullish (24h change is +0.9). The models also projected an average of 0.0 CDDs per day over the next 15 days (0.1 below the norm). The change from Thursday is neutral (24h change is 0.0). Overall, we estimate that total natural gas demand will jump by no less than 20% next week and will be as much as 20% above the 5-year norm.

On Thursday, the EIA reported a draw of 81 bcf. Total storage now stands at 2,533 bcf, which is 327 bcf (or 11.43%) below 5-year average for this time of the year. Currently, we expect EIA to report a draw of 152 bcf next week (final estimate will be released next Wednesday). Overall, at this point in time, we expect storage flows to average -195 bcf over the next three reports. Natural gas inventories deviation from 5-year average is currently projected to expand from -327 bcf (or -11.43%) to -428 bcf (or -18.02%) for the week ending February 1.

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.