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Natural Gas Market Overview: LNG Feed Gas Flows Set A New All-Time High

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

Total demand for natural gas is down 0.2% y-o-y to 83.8 bcf/d.

Total supply is up 8.2% y-o-y to 101.2 bcf/d.

We currently expect the EIA to report a build of 94 bcf next week, which is 32 bcf larger than a year ago and 21 bcf larger vs. the 5 year.

LNG feed gas flows set a new all-time high and we estimate that by December, total natural gas exports from the U.S. will reach 13.35 bcf/d.

Actual supply-demand balance is still relatively bearish, but weather-neutral balance is tightening.

This report covers the week ending October 18, 2019.

Total Demand

We estimate that the aggregate demand for American natural gas (consumption + exports) totaled around 586 bcf for the week ending October 18 (up 3.5% w-o-w (week over week) but down 0.2% y-o-y (year over year)). The deviation from the norm remained positive and actually increased from +15.0% to +18.0%. We estimate that total demand has remained above the 5-year norm for 40 consecutive weeks now.

Source: Bluegold Research estimates and calculations

This week, the weather conditions have cooled down significantly across the Lower-48 states. We estimate that the number of nationwide cooling degree-days (CDDs) plunged by 47.0% w-o-w (from 30 to 16), while the number of heating degree-days (HDDs) jumped by 72% (from 37 to 64). Still, total energy demand (measured in total degree-days - TDDs) was 18.6% below last year's level.

However, it is important to remember that the same time last year, natural gas consumption was abnormally strong. Therefore, the bearish annual difference in consumption is partly exaggerated by exceptionally high comparison base. In other words, making "unadjusted" y-o-y comparisons may not be particularly appropriate simply because the benchmark is set too high.

Non-degree-day factors were predominantly bearish (vs. last year). 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 were mostly within the norm (17.6 GW per day on average) - see the chart below.
  • The average spread between natural gas and coal increased by $0.012 per MMBtu (as the price of natural gas increased, while the price of coal remained essentially unchanged). We estimate that coal-to-gas switching averaged around 7.3 bcf/d this week (up 0.6 bcf/d vs. 2018 and up 1.2 bcf/d vs. the 5-year norm).
  • Wind speeds and hydro inflows were mostly stronger y-o-y. On balance, in the week ending October 18, these two factors probably displaced some 300 MMcf/d of potential natural gas consumption in the Electric Power sector (compared to the same period in 2018).

Source: U.S. Nuclear Regulatory Commission

Overall, the net cumulative effect from non-degree-day factors this week should be positive at around +4.3 bcf/d of potential natural gas consumption in the Electric Power sector. However, that positive figure is some 1.4 bcf/d below last year's results.

Total exports were up 0.8% w-o-w - primarily due to stronger LNG sales. According to Marine Traffic, U.S. LNG export terminals (Sabine Pass, Cove Point, Corpus Christi, Cameron, and Freeport) served 11 LNG vessels with a total natural gas capacity of 38 bcf. Total flows to liquefaction averaged 6.7 bcf/d. In annual terms, total exports increased by 26.7% in the week ending October 18.

Preliminary data shows that on a daily basis, LNG feed gas flows have reached a new all-time high today (Friday, October 18) - 7.1 bcf/d - as Cove Point export terminal returned from a three-week maintenance. Based on the current trends, we estimate that by December total natural gas exports from the U.S. will reach 13.35 bcf/d, of which LNG exports will amount to 6.43 bcf/d (or 48.1% of the total).

Source: Bluegold Research estimates and calculations

Source: Bluegold Research estimates and calculations

Total Supply

We estimate that dry gas production has been expanding in annual terms for 124 consecutive weeks now, but the growth rate is weakening due to base effects. Currently, we project that dry gas production will average 94.06 bcf/d in October, 93.54 bcf/d in November, and 92.95 bcf/d in December. In the week ending October 18, we estimate that the aggregate supply of natural gas (production + imports) averaged around 101.2 bcf per day (up 0.6% w-o-w and up 8.2% y-o-y).

Total Balance

Overall, total "non-adjusted" supply-demand balance for the week ending October 18 should be around +17.37 bcf/d, which is approximately +7.8 bcf/d looser compared to the same week in 2018 (see the chart below). Next week (ending October 25), the balance is projected to loosen up more. Annual difference could be as large as +9.05 bcf/d (i.e., +17.74 bcf/d in 2019 vs. +8.69 bcf/d in 2018).

Source: Bluegold Research estimates and calculations

However, weather-neutral SD balance (see the definition below) is projected to tighten slowly compared to the previous year. As of today, we estimate that the weather-neutral SD balance is around +4.72 bcf/d (vs. 2018), but we expect the balance to drop to just +0.17 bcf/d by December 27.

Source: Bluegold Research estimates and calculations. Weather-Neutral SD Balance (yellow curve on the chart above) = production + imports - exports.

Storage

Currently, we expect the EIA to report a build of 94 bcf next week (final estimate will be released on Wednesday). Overall, at this point in time, we expect storage flows to average +80 bcf over the next two weeks (three EIA reports). Natural gas storage "surplus" relative to the 5-year average is currently projected to expand from +14 bcf today to +60 bcf for the week ending November 1.

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.