February 21, 2019 Natural Gas Storage Report: Storage Deficit To Continue Expanding.

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by: Bluegold Research
Summary

This Thursday, we expect EIA to report 1,712 bcf of working gas in storage for the week ending February 15.

We anticipate to see a draw of 170 bcf, which is 36 bcf larger than a year ago and 22 bcf larger vs. the 5-year average.

Dry gas production has failed to set a new all-time-high for 81 consecutive days now.

Total monthly natural gas balance is currently projected to be 4.3 bcf/d tighter in February (vs. 2018) and 1.8 bcf/d tighter in March.

THE WEATHER

Last week, the number of heating degree-days (HDDs) jumped by 19.5% w-o-w and by almost 17% y-o-y. We estimate that total energy demand (as measured in total degree-days – TDDs) was approximately 14% above last year’s level.

This week, the weather conditions have cooled down again, but only slightly. An increase in heating demand was especially pronounced in Central and Western parts of the U.S. We estimate that the number of HDDs will rise by around 5.0% w-o-w in the week ending February 22. Because HDDs are rising from a relatively high base, the absolute consumption figures remain strong. Indeed, we estimate that total average daily demand for natural gas for the week ending February 22 should be somewhere between 120 and 125 bcf/d, which is as much as 23% above the 5-year average for this time of the year. Total energy demand (measured in TDDs) should be no less than 35% above last year’s level.

Next week (March 1), the weather conditions are expected to warm up a bit. The number of HDDs is currently projected to drop by 4.7% w-o-w. In annual terms, however, heating demand is still expected to remain very strong (as much as 50% above last year’s level), while the deviation from the norm would rise to +18.0% (see the chart below).

Total Energy Demand

Total natural gas demand forecast

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 (February 19–March 6). The total demand is expected to average 123.2 bcf/d over the next 15 days (some 26.0% above the 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 coal-to-gas-switching. We estimate that at the current spread between natural gas and coal, coal-to-gas-switching must be averaging approximately 7.0 bcf/d (1.7 bcf/d above the norm). At the same time, other non-degree-day factors, such as rising nuclear outages and relatively weak hydro inflows are spurring extra consumption in the Electric Power sector by no less than 600 MMCf /d compared to the previous year.

While total demand remains strong, total supply is mostly flat. Indeed, there has been essentially no growth in dry natural gas production for almost three months now. The total monthly natural gas balance which is calculated as the difference between total supply and total demand, is currently projected to be 4.3 bcf/d tighter vs. February 2018 and 1.8 bcf/d tighter vs. March 2018 (see the bright blue curve on the chart below). However, the weather models are extremely volatile during this time of the year so all the long-term projections should be taken with a grain of salt.

Total Natural Gas Balance

Total natural gas supply demand balance

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 170 bcf (6 bcf smaller than the comparable figure in the ICE’s latest report for the EIW-US EIA Financial Weekly Index, but 36 bcf larger than a year ago and 22 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 the previous year and compared to the 5-year average. The next three EIA reports are expected to confirm the expansion of the 5-year average deficit by a total of 124 bcf and the expansion of the annual deficit by a total of 206 bcf.

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.