March 7, 2019, Natural Gas Storage Report: EOS Index Is Still Below 1,000 Bcf

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by: Bluegold Research
Summary

This Thursday, we expect EIA to report 1,398 bcf of working gas in storage for the week ending March 1.

We anticipate to see a draw of 141 bcf, which is 81 bcf larger than a year ago and 32 bcf larger vs. the five-year average.

Dry gas production has failed to set a new all-time-high for 95 consecutive days now.

Projected total degree days remain above the norm (for now), but the deviation has moderated.

Total natural gas balance is currently projected to be 5.0 bcf/d tighter in March, but 7.8 bcf/d looser in April (vs 2018).

The Weather

Last week, the number of heating degree-days (HDDs) dropped by 8.6% w-o-w, but was up 44% y-o-y. We estimate that total energy demand (as measured in total degree-days – TDDs) was approximately 40% above last year’s level.

This week, the weather conditions have cooled down significantly across the U.S. An increase in heating demand was especially pronounced in the Southwest and Midwest parts of the country. We estimate that the number of nationwide HDDs will jump by around 24.0% w-o-w in the week ending March 8. Because HDDs are rising from a relatively high base, the absolute consumption figures are a record high. Indeed, we estimate that total average daily demand for natural gas for the week ending March 8 should be somewhere between 125 and 135 bcf/d, which is as much as 30% above the five-year average for this time of the year. Total energy demand (measured in TDDs) should be no less than 45% above last year’s level.

Next week, the weather conditions are expected to warm up. The number of HDDs is currently projected to plunge by whopping 30.0% w-o-w. In annual terms, however, heating demand is still expected to remain elevated (around 5% above last year’s level), while the deviation from the norm would drop to +11.0% (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 (March 5 – March 20). Total demand is expected to average 112.5 bcf/d over the next 15 days (some 25.0% above the five-year average), supported (in part) by strong exports – specifically into Mexico – but also by robust LNG sales.

Projected TDDs are now 12.3% above last year's level and 21.0% above the norm, but the deviation has been moderating lately (see the chart below).

Projected Total Degree Days

projected total degree days

Source: Bluegold Research estimates and calculations

Natural gas consumption also is 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 6.5 bcf/d (0.4 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 previous year. Indeed, nuclear outages jumped sharply on Monday to 10,800 MW. Nuclear generation that's offline is often (but not always) replaced with natural gas-fired generation. Therefore, monitoring nuclear outages on a daily basis is very important – especially given that they tend to rise in spring and summer.

While total demand remains strong, total supply is mostly flat. Indeed, there has been essentially no growth in dry natural gas production for the past three months. Total monthly natural gas balance, which is calculated as the difference between total supply and total demand, is currently projected to be 5.0 bcf/d tighter vs. March 2018, but 7.8 bcf/d looser vs.April 2018. 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.

Storage

This week, U.S. Energy Information Administration should report a smaller change in natural gas storage compared to the previous week. We anticipate to see a draw of 141 bcf (1 bcf smaller than the comparable figure in the ICE’s latest report for the EIW-US EIA Financial Weekly Index, but 81 bcf larger than a year ago and 32 bcf larger vs. the five-year average for this time of the year).

There's 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 compared to the five-year average. Next three EIA reports are expected to confirm the expansion of the five-year average deficit by a total of 174 bcf and the expansion of annual deficit by a total of 203 bcf.

Our EOS storage index has dropped below 1,000 bcf to 997 bcf (for the week ending March 29). However, because we currently also expect another tiny draw for the week ending April 5, the actual EOS storage figure could be lower. Equally, however, it may also be higher in case the weather models turn bearish. Overall, we expect the storage deficit (relative to the five-year average) to remain for the rest of withdrawal season and persist well into the injection season.

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.