Last week, the number of heating degree-days (HDDs) plunged by 43.0% w-o-w, as weather conditions warmed up across the country. Heating demand was down 17% y-o-y. We estimate that total energy demand (as measured in total degree-days, or TDDs) was approximately 14% below last year’s level.
This week, the weather conditions have cooled down, but only slightly. We estimate that the number of nationwide HDDs will rise by 5.0% w-o-w in the week ending March 22. Total average daily demand for natural gas for that week should be somewhere between 100 and 105 bcf/d, which is approximately 20% above 5-year average for this time of the year. However, total energy demand (measured in TDDs) should be some 6% below last year’s level.
Next week, the weather conditions are expected to get warmer, almost eliminating the isolated pockets of heating demand. The number of HDDs is currently projected to drop by 8.0% w-o-w for the week ending March 29. At the same time, the number of cooling degree days (CDDs) is projected to more than double, as spring will finally arrive to most parts of the U.S. In annual terms, however, total energy demand is still expected to remain elevated (around 3% above last year’s level), while the deviation from the norm would rise to +5.0% (see the chart below).
Total Energy Demand
(Source: Bluegold Research estimates and calculations)
On average, the latest numerical weather prediction models are showing just about normal amount of TDDs over the next 15 days (March 20-April 4). Total demand is expected to average 95.3 bcf/d over the next 15 days (some 14.0% above 5-year average), supported (in part) by strong exports - specifically into Mexico - and 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 6.7 bcf/d (0.9 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 400 MMcf/d compared to the previous year.
While total demand remains relatively strong, total supply is mostly flat. Indeed, there has been essentially no growth in dry natural gas production for more than three months now. Total monthly natural gas balance (SD balance), which is calculated as the difference between total supply and total demand, is currently projected to be as much as 10 bcf/d looser in April 2019 (vs. April 2018). We think that looser SD Balance in April should exert downward pressure on prices - specifically on May and June contracts.
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 45 bcf (3 bcf smaller than the comparable figure in the ICE’s latest report for the EIW-US EIA Financial Weekly Index, 42 bcf smaller than a year ago and 11 bcf smaller vs. the 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 contraction of the 5-year average deficit by a total of 10 bcf and the contraction of the annual deficit by a total of 77 bcf.
Thank you for reading our weekly report. We also write a daily update of our forecast for key natural gas variables: weather, production, consumption, exports, imports and storage. Interested in getting this daily update? Sign up for Natural Gas Fundamentals, our Marketplace service, to get the most critical natural gas data.
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.