This report covers the week ending May 17, 2019.
We estimate that aggregate demand for American natural gas (consumption + exports) totaled around 558 bcf for the week ending May 17 (up 1.4% w-o-w and up 6.1% y-o-y). The deviation from the norm remained positive, but increased only slightly from +14.6% to +15.7% (see the chart below).
Source: Bluegold Research Estimates and Calculations
This week, the weather conditions have been abnormally cool as the number of nation-wide heating degree-days (HDDs) jumped 14.0% w-o-w, while the number of cooling-degree days (CDDs) edged down by 2.0%. Overall, total energy demand (measured in total degree-days) should be above last year's level by around 7.0%.
However, non-degree day factors were mixed. The most important four non-degree-day factors that we are looking at are: nuclear outages, the spread between natural gas and coal (coal-to-gas switching), wind speeds, and hydro inflows.
- Nuclear outages have remained below the norm (some 11 GW of nuclear power were offline this week - as much as 28% below the historical mean);
- NG/Coal spreads remained relatively low, allowing coal-to-gas switching to reach 7.2 bcf/d (no less than 1.7 bcf/d above 5-year average).
- Wind speeds and hydro inflows were mostly weaker y-o-y, displacing a relatively negligible amount of potential natural gas consumption in the Electric Power sector (around 2 bcf/d).
Source: U.S. Nuclear Regulatory Commission
The net cumulative y-o-y effect from non-degree day factors was bullish at +1,500 MMcf/d of potential natural gas consumption.
Total exports rose by 8.5% w-o-w - primarily due to stronger LNG sales. According to Marine Traffic, U.S. LNG export terminals (Sabine Pass, Cove Point, and Corpus Christi) served 10 LNG vessels with total natural gas capacity of 34 bcf, very close to an all-time high. Total flows to liquefaction averaged 5.7 bcf/d. In annual terms, total exports were up 39.0% y-o-y.
We estimate that dry gas production has been expanding in annual terms for 102 consecutive weeks now, but the growth rate is weakening due to base effects. Currently, we project that dry gas production will average 89.87 bcf/d in May, 89.98 bcf/d in June and 90.01 bcf/d in July. The aggregate supply of natural gas (production + imports) averaged around 97.20 bcf per day for the week ending May 17 (up 0.05% w-o-w and up 10.6% y-o-y).
Overall, total unadjusted supply/demand balance should be positive at around +17.50 bcf/d.
In the simplest of terms, and with all other things being equal, this kind of balance is bearish for natural gas prices, since it is above last year's level and above the historical norm (see the chart below). 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 NG/coal spreads. In the week ending May 24, we expect natural gas balance to be looser (relative to 2018), by around 3.28 bcf/d.
Source: Bluegold Research estimates and calculations; Note: total supply-demand balance does not equal storage flows.
What about weather-neutral balance? Weather-neutral SD balance = production + imports - exports. So far, it remains above last year's level, but is projected to tighten slowly. However, by August 2, 2019, it is still projected to remain looser (relative to 2018) by around 4.12 bcf/d - see the chart below.
Source: Bluegold Research estimates and calculations; Note: LNG exports estimates are based on vessels tracking system (not on the liquefaction flows) and therefore are likely to be revised higher.
Yesterday, the EIA reported a build of 106 bcf (exactly in line with our expectations - see this article). Total storage now stands at 1,653 bcf, which is 286 bcf (or 14.75%) below 5-year average for this time of the year. Currently, we expect EIA to report a build of 104 bcf next week (final estimate will be released next Wednesday). Overall, at this point in time, we expect storage flows to average +109 bcf over the next three reports. Natural gas inventories deviation from 5-year average is currently projected to narrow from -286 bcf (or -14.75%) today to -246 bcf (or -11.05%) for the week ending May 31.
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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.