This report covers the week ending March 15, 2019.
Total Supply/Demand Balance
We estimate that aggregate demand for American natural gas (consumption + exports) totaled around 705 bcf for the week ending March 15 (down 23.0% w-o-w and down 1.3% y-o-y). The deviation from the norm remained positive but dropped from +30% to +11% (see the chart below).
This week, the weather conditions have warmed up significantly across the country – but particularly in the Midwest and Northeast parts of the U.S. We estimate that the number of nationwide heating degree-days (HDDs) plunged by 40.0% w-o-w in the week ending March 15. 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, weaker hydro inflows and larger number of nuclear outages are adding some extra 200-300 MMcf/d of potential natural gas consumption in the Electric Power sector (compared to March 2018). On the other hand, the level of coal-to-gas-switching remains below last year's level, but still above the norm. According to the U.S. Nuclear Regulatory Commission, nuclear outages averaged 15,275 MW this week, some 23% above the 5-year average. Overall, total energy demand (measured in total degree-days) should be below last year’s level by around 12%.
Total exports dropped by 11.0% w-o-w – primarily, due to weaker LNG sales (as a result of a high comparison base). 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. Total flows to liquefaction averaged 5.3 bcf/d. In annual terms, total exports were up 20.0% y-o-y.
Total Natural Gas Demand
* norm defined as simple average over the last 5 years. Source: Bluegold Research
We estimate that dry gas production has been expanding in annual terms for 93 consecutive weeks now, but the growth rate is weakening due to base effects. Currently, we project that dry gas production will average 87.76 bcf/d in March, 88.51 bcf/d in April and 88.85 bcf/d in May. The aggregate supply of natural gas (production + imports) averaged around 95.7 bcf per day for the week ending March 15 (down 1.0% w-o-w but up 7.0% y-o-y). Overall, total unadjusted supply/demand balance should be negative at around -5.0 bcf/d.
Total Natural Gas Supply-Demand Balance
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 March 22, we expect natural gas balance to be looser (relative to 2018) by around 6.0 bcf/d.
Yesterday, the EIA reported a draw of 204 bcf. Total storage now stands at 1,186 bcf, which is 569 bcf (or 32.42%) below the 5-year average for this time of the year. Currently, we expect the EIA to report a draw of 47 bcf next week (final estimate will be released next Wednesday). Overall, at this point in time, we expect storage flows to average -30 bcf over the next three reports. Natural gas inventories' deviation from the 5-year average is currently projected to narrow from -569 bcf (or -32.42%) today to -539 bcf (or -32.97%) for the week ending March 29. Notice that storage deficit is projected to narrow in terms of volume (measured in billion cubic feet), but not percentage-wise.
We expect first storage built to be reported on April 4 (for the week ending March 29). The latest consumption forecast indicates that the annual storage deficit is already shrinking and should continue to shrink for the rest of April and in May. However, we currently do not envisage a scenario where natural gas inventories rises above the 5-year average. In other words, a storage deficit relative to the long-term norm is likely to persist for the rest of 2019.
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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.