May 2019: Natural Gas Demand Overview And Forecast

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Includes: BOIL, DGAZ, FCG, GASX, GAZB, KOLD, MLPG, UGAZ, UNG, UNL
by: Bluegold Research
Summary

Natural gas consumption for February reached the highest level for the month since 2001, when EIA began using the current definitions for consuming sectors.

LNG exports were the highest for the month since EIA began tracking them in 1997.

Next year, the share of exports (in the overall demand mix) will overtake residential consumption (on a 12-month average basis).

The U.S. Energy Information Administration has recently released their natural gas monthly statistics for February 2019. In this article, we will briefly review their consumption and exports figures, then look at our estimates for March and April and conclude with our latest forecast for May, June, and July.

February Overview

Aggregate demand (national consumption + exports) for American natural gas increased by 12.54% y-o-y in February 2019 to 119.66 bcf/d. Consumption jumped by 10.52% y-o-y to 106.60 bcf/d, while exports surged by 32.31% y-o-y to 13.05 bcf/d, just 0.01 bcf/d short of an all-time high.

Natural gas consumption for February reached the highest level for the month since 2001, when EIA began using the current definitions for consuming sectors. Year-over-year total consumption of dry natural gas in February 2019 increased in all four consuming sectors. Deliveries of natural gas by consuming sector in February 2019 were:

  • Residential deliveries: 807 Bcf, or 28.8 Bcf/d, which was up 17.5% compared with 24.5 Bcf/d in February 2018. Residential deliveries were the highest for the month since 2015.
  • Commercial deliveries: 472 Bcf, or 16.9 Bcf/d, which was up 12.4% compared with 15.0 Bcf/d in February 2018. Commercial deliveries were the highest for the month since 2015.
  • Industrial deliveries: 710 Bcf, or 25.4 Bcf/d, which was up 3.0% compared with 24.6 Bcf/d in February 2018. Industrial deliveries were the highest for the month since EIA began using the current definitions for consuming sectors in 2001.
  • Electric power deliveries: 769 Bcf, or 27.5 Bcf/d, which was up 9.7% compared with 25.0 Bcf/d in February 2018. Electric power deliveries were the highest for the month since EIA began using the current definitions for consuming sectors in 2001.

External demand also remained strong, mostly due to higher pipeline exports into Canada and Mexico and robust LNG sales, which increased by 19.05%, 36.14% and 39.60% y-o-y, respectively. Natural gas exports were the highest for the month of February since EIA began tracking monthly exports in 1973. In February 2019, the United States exported 3.7 Bcf/d of LNG to 22 countries, the most countries to which the United States has ever shipped LNG in a single month. LNG exports were the highest for the month since EIA began tracking them in 1997.

Strong exports growth and an increase in national consumption ensured that the growth in total demand stayed positive. In fact, on an annualized basis, aggregate demand has not posted a single negative growth figure since January 2010.

Source: EIA, Bluegold Research estimates and calculations

Total demand continues to grow faster than consumption, a trend which has been in place since May 2015. It points to the rising weight of exports within the overall demand structure. On the chart above, you can clearly see that growth rates in consumption and exports often diverge. Despite occasionally weak consumption, total demand is still growing in annual terms due to the very strong exports rate. Previously, however, total demand growth was almost entirely driven by national consumption.

This February, pipeline and LNG exports combined totaled 365.5 bcf or 13.5 bcf per day. The volume of total exports is now equivalent to 12.25% of national natural gas consumption on a monthly basis. On a 12-month average basis, exports now equate to around 11.72% of total demand - a new all-time record (see the chart below). Exports' share in the aggregate demand structure has almost doubled over the past three years.

Source: EIA, Bluegold Research estimates and calculations

Exports remain the fastest-growing source of demand for American natural gas. While total demand (12-month average) increased by 21.70% over the past five years (from February 2014 to February 2019), exports more than doubled over the same period. In fact, exports have already surpassed the "Other" category in the overall demand mix and are now more significant in weight than U.S. commercial users (see the chart below). Next year, the share of exports will overtake residential consumption (on a 12-month average basis).

Source: EIA, Bluegold Research estimates and calculations

*Other category includes lease, plant, and vehicle fuels, as well as pipeline and distribution use.

Other fast-growing sources of demand include Electric Power/powerburn (+30.99% since February 2014) and industrial consumption (+10.88%). Notice that over the past five years, residential and commercial consumption has remained virtually unchanged.

Source: EIA, Bluegold Research estimates and calculations

Estimates And Forecast

After rising by 10.52% y-o-y in February, we estimate that natural gas consumption then increased by 5.69% y-o-y in March to 94.6 bcf/d thanks to colder weather and a favorable base effect. However, weather-induced heating demand dropped in April and total consumption came to just 71.3 bcf/d (-8.48% y-o-y).

Currently, we expect natural gas consumption in the U.S. to remain relatively stable, but minor volatility is possible as a result of frequent changes in the short-range weather models. Under the latest weather forecasts, we project that national natural gas consumption will increase in annual terms by around 0.50% (on average) over the next three months (May-June-July). However, the rate will vary significantly for each month. For example, at this moment in time, we expect consumption to rise by 2.54% y-o-y in May to 67.7 bcf/d. However, we then expect consumption to drop slightly in June and July by around -0.6% and -1.8% y-o-y, respectively (due to below normal cooling-degree days projected in the latest CFSv2 model).

Exports should continue to expand rapidly. We currently expect total exports to average 11.4 bcf/d in May-June-July (+21.20% y-o-y). However, please note that our LNG exports estimates are based on the vessels tracking system (not on the liquefaction flows) and therefore are likely to be revised higher.

Source: EIA, Bluegold Research estimates and calculations

Total Balance

What about supply? After all, it is not the demand which is driving the price, but the interaction between demand and supply. No doubt, dry gas production is strong. In February 2019, for the 22nd consecutive month, dry natural gas production increased y-o-y for the month. The preliminary level for dry natural gas production in February 2019 was 2,497 bcf, or 89.2 Bcf/d. This level was 9.8 Bcf/d (12.4%) higher than the February 2018 level of 79.4 Bcf/d. The average daily rate of dry natural gas production for February was the highest for any month since EIA began tracking monthly dry natural gas production in 1973.

At this moment in time, we expect dry gas production to average 89.68 bcf/d in May, 90.09 bcf/d in June, and 90.20 bcf/d in July. Overall, we believe that over the next three months, total supply will be growing faster (on an annualized basis) than total demand ensuring that total supply-demand balance will be looser relative to 2018. We estimate that annual supply-demand surplus will amount to +4.25 bcf/d in May, +4.89 bcf/d in June and +6.25 bcf/d in July. However, we do not expect total annual storage surplus to be very large. We currently expect to see just over +300 bcf in storage by August 2019 (vs August 2018).

Source: EIA, Bluegold Research estimates and calculations

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.