Last week (ending October 4), the number of cooling degree-days (CDDs) dropped by approximately 8.4% w-o-w (from 64 to 58), as weather conditions cooled down across the country. Heating demand has surged w-o-w but it remained relatively weak to have a meaningful impact on natural gas consumption. We estimate that total energy demand (as measured in total degree-days, or TDDs) was approximately 22.0% above last year's level and as much as 34.0% above the norm (see the chart below).
This week, the weather conditions are cooling down again, but this time more noticeably. We estimate that the number of nationwide CDDs will drop by 48% w-o-w in the week ending October 11 (from 58 to 30), while the number of nationwide HDDs will jump 40% (from 25 to 35). Total average daily demand for natural gas should be somewhere between 79 bcf/d and 84 bcf/d, which is approximately 14.0% above the 5-year average for this time of the year. Still, total energy demand (measured in TDDs) should be around 8.0% below last year's level and about 1.0% below the norm.
Next week, the weather conditions are expected to get significantly colder and in absolute terms, the temperatures are expected to drop below the norm. The number of CDDs is currently projected to plunge by another 33.0% w-o-w for the week ending October 18 and stop having any meaningful impact on natural gas consumption. At the same time, the number of heating degree days (HDDs) is projected to jump by 63% (from 35 to 58). In annual terms, however, total energy demand (measured in TDDs) is expected to drop by 21.0% - partly due to very unfavorable base effect. However, the deviation from the norm should be positive at around +9.40% (see the chart below).
Total Energy Demand
Source: Bluegold Research estimates and calculations
Total Supply-Demand Balance
On average, the latest numerical weather prediction models (Wednesday's short-range 00z runs) are showing roughly normal amount of TDDs over the next 15 days (October 9-October 24). Total demand is expected to average 82.7 bcf/d (some 15.7% above the 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 7.1 bcf/d (0.7 bcf/d above the norm). At the same time, other non-degree-day factors - specifically, rising nuclear outages - are spurring extra consumption in the Electric Power sector. However, stronger wind, hydro and solar generation are having a negative impact on the potential powerburn. On balance, we estimate that non-degree day factors are currently bearish for potential natural gas consumption (compared to the same period in 2018).
While total demand remains relatively strong, it is still not strong enough to shrink annual storage "surplus," which has built up over the past months. Indeed, total supply (dry gas production + imports) is projected to remain above 100.0 bcf/d for the week ending October 11. Total monthly natural gas balance (SD balance), which is calculated as the difference between total supply and total demand, is currently projected to be 5.9 bcf/d looser in October 2019 (vs. October 2018) and 10.3 bcf/d looser in November 2019 (vs. November 2018).
Price And Technicals
On a daily chart, Nov. contract price has broken below an ascending wedge. Technically, the bears still want to get into 2.300-2.200 range. The rallies are likely to be limited by 2.370 and 2.400. An inverse cup and handle pattern also confirms that the bears' mid-term targets are located below 2.300.
This week, the U.S. Energy Information Administration should report a relatively smaller change in natural gas storage compared to the previous week. We anticipate to see a build of 100 bcf (1 bcf smaller than the comparable figure in the ICE's latest report for the EIW-US EIA Financial Weekly Index, 9 bcf larger than a year ago and 11 bcf larger vs. the 5-year average for this time of the year).
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