Natural Gas Weekly: Seasonal Trends Are Bearish, But Fundamentals Are Bullish

by: Bluegold Research

Total demand for American natural gas is down 20.0% w-o-w to 110.0 bcf per day, but is projected to rebound next week.

Total natural gas supply is down 2.0% w-o-w to 95.1 bcf per day.

We currently expect EIA to report a draw of 85 bcf next week.

Projected total degree-days remain above the norm.

Aggregate demand is currently projected to rise by 10% w-o-w in the week ending February 15.

This report covers the week ending February 8, 2019. Daily data for February 2 to February 7 is estimated. Daily data for February 8 is forecast.


We estimate that aggregate demand for American natural gas (consumption + exports) will total around 766 bcf for the week ending February 8 (down 20.0% w-o-w and down 6.0% y-o-y). The deviation from the norm, however, remained positive, but plunged from +28% to +4% (see the chart below).

This week, the weather conditions have warmed up across the country – but particularly in the Midwest, Northeast and Southeast parts of the U.S. We estimate that the number of nationwide heating degree-days (HDDs) dropped by no less than 36.0% w-o-w in the week ending February 8. 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 1.7 bcf/d of potential coal-to-gas-switching (compared to February 2018), while the level of hydro inflows is some 200 MMcf/d weaker compared to previous year. According to U.S. Nuclear Regulatory Commission, nuclear outages averaged 4,800 MW this week, which was 10% below 5-year average. Overall, total energy demand (measured in total degree-days) should be below last year’s level by a whopping 20%.

Total exports dropped by 14.0% w-o-w – primarily due to weaker LNG sales. According to Marine Traffic, U.S. LNG export terminals (Sabine Pass, Cove Point and Corpus Christi) served only four LNG vessels with total natural gas capacity of 14 bcf. At the same time, total flows to liquefaction averaged just 2.7 bcf/d. In annual terms, total exports were up by 12.0% y-o-y.

Total Natural Gas Demand

* 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 88 consecutive weeks now, but the growth rate is weakening due to base effects. Currently, we project that dry gas production will average 87.2 bcf/d in January, 87.4 bcf/d in February and 87.3 bcf/d in March. The aggregate supply of natural gas (production + imports) averaged around 95.1 bcf per day for the week ending February 8 (down 2.0% w-o-w, but up 7.5% y-o-y). Overall, total unadjusted supply/demand balance should be negative at around -14.3 bcf/d.

Total Natural Gas Supply-Demand Balance

total natural gas supply demand balance and forecast

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 (see the chart above). 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. In the week ending February 15, we expect natural gas balance to be tighter (relative to 2018) by around 5.7 bcf/d as total demand is currently expected to increase by 10.0% w-o-w.


The latest short-range weather models (06z) project an average of 27.9 HDDs per day (2.5 above the norm) over the next 15 days (Feb. 8-Feb. 23). The change from Thursday is bullish (24h change is +0.4 in 06z run). CDDs also impact consumption - especially in the Electric Power sector, but during February-March, the number of CDDs should remain relatively low. The latest models project an average of 0.5 CDDs per day over the next 15 days (0.3 above the norm). The change from Thursday is neutral (24h change is 0.0 in 06z run).

Despite colder than normal weather conditions, flat production figures and expanding storage deficits, natural gas price has been falling. One of the reasons for this ostensibly “irrational” decline is seasonality. Indeed, March contract has historically been the most bearish natural gas contracts of all and, in general, natural gas price rarely increases in February (see the charts below).

natural gas seasonality natural gas seasonal chart Source: CME Group, Bluegold Research

Apparently, the market decided to ignore the bullish weather conditions and still focus on the seasonal trends. The problem is that lower prices boost consumption even more. At a price of $2.570 per MMBtu, coal-to-gas switching rises above 7 bcf/d. If this level of coal-to-gas switching is sustained, then EOS storage will not even reach 2,900 bcf by the end of October.

Today, the EIA reported a draw of 237 bcf. Total storage now stands at 1,960 bcf, which is 415 bcf (or 17.47%) below 5-year average for this time of the year. Currently, we expect EIA to report a draw of 85 bcf next week (final estimate will be released next Wednesday). Overall, at this point in time, we expect storage flows to average -141 bcf over the next three reports. Natural gas inventories deviation from 5-year average is currently projected to expand from -415 bcf (or -17.47%) today to -426 bcf (or -21.70%) for the week ending February 22.

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.