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Natural Gas Market Overview: Total Degree Days Are Trending Higher

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Includes: BOIL, DGAZ, FCG, GASX, GAZB, KOLD, MLPG, UGAZ, UNG, UNL
by: Bluegold Research
Bluegold Research
Commodities, medium-term horizon, trader
Summary

Total demand for U.S. natural gas is up 6.0% y-o-y to 117 bcf/d.

Total U.S. natural gas supply is up 6.3% y-o-y to 104.7 bcf/d.

We currently expect the EIA to report a draw of 93 bcf next week, 11 bcf larger than a year ago but 91 bcf smaller vs. the five-year average.

There is still a disagreement between the short-range models, but TDDs are generally projected to trend higher.

This report covers the week ending January 10, 2020.

Total Demand

We estimate that the aggregate demand for American natural gas (consumption + exports) totaled around 816 bcf for the week ending January 10 (up 4.9% w-o-w (week over week) and up 6.0% y-o-y (year over year)). The deviation from the norm remained positive and actually increased from +2% to +6% (see the chart below). We estimate that total demand has been above the five-year norm for 52 consecutive weeks now.

Source: Bluegold Research estimates and calculations

This week, the weather conditions have cooled down across the Lower-48 states. We estimate that the number of nationwide heating degree-days (HDDs) increased by 9.6% w-o-w (from 145 to 159). Total energy demand (measured in total degree-days - TDDs) should be 2.3% below last year's level, but as much as 21.0% below the norm.

Consumption-wise, Friday's 00z and 06z short-range weather models were rather mixed. GFS-ENS 00z was slightly bearish vs. yesterday's results. ECMWF-ENS 00z model was bearish vs. yesterday's 12z results, but bullish vs. yesterday's 00z results. However, the latest model (GFS-ENS 06z) showed strong bullish changes vs. previous run. In absolute terms, GFS models are "more bullish" than ECMWF models. The extended ECMWF model projects that TDDs should generally trend higher.

Source: Bluegold Research estimates and calculations;

Non-degree-day factors

Non-degree-day factors are mostly bullish (vs. last year). The most important five 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, solar radiation and hydro inflows.

  • Nuclear outages were mostly below the norm (1.4 GW per day on average) - see the chart below.
  • The average spread between natural gas and coal dropped by -$0.008 per MMBtu (as the price of natural gas remained essentially unchanged, while the price of coal slightly increased). We estimate that coal-to-gas switching averaged around 7.0 bcf/d this week (+0.9 bcf/d vs. 2019 and +1.2 bcf/d vs. the five-year norm).
  • Wind and solar generation was mostly stronger y-o-y, but hydro generation was weaker. On balance, in the week ending January 10, these three factors probably displaced some 400 MMcf/d of potential natural gas consumption in the Electric Power sector (compared to the same period in 2019).

Source: U.S. Nuclear Regulatory Commission

Overall, the net cumulative effect from the non-degree-day factors this week should be positive at around +2.0 bcf/d of potential natural gas consumption in the Electric Power sector, which is 0.1 bcf/d above last year's results.

Exports

Total exports were down 1.5% w-o-w - primarily due to weaker pipeline inflows into Canada and weaker LNG sales (please note that our LNG export estimates are based on the vessels tracking system, not on the liquefaction flows). According to Marine Traffic, U.S. LNG export terminals (Sabine Pass, Cove Point, Corpus Christi, Cameron, and Freeport) served 15 LNG vessels with a total natural gas capacity of 52 bcf. Total LNG feed gas flows averaged 8.3 bcf/d. In annual terms, total exports increased by 28.0% in the week ending January 10.

Source: Bluegold Research estimates and calculations

Total Supply

We estimate that dry gas production has been expanding in annual terms for 140 consecutive weeks now, but the growth rate is weakening due to base effects. Currently, we project that dry gas production will average 96.2 bcf/d in January, 95.8 bcf/d in February, and 94.7 bcf/d in March. In the week ending January 10, we estimate that the aggregate supply of natural gas (production + imports) averaged around 104.7 bcf per day (essentially flat w-o-w but up 6.3% y-o-y).

Total Balance

Overall, total "non-adjusted" supply-demand balance for the week ending January 10 should be negative at around -11.99 bcf/d, which is approximately -0.40 bcf/d tighter compared to the same week in 2019 (see the chart below). Next week (ending January 17), the balance is projected to loosen up substantially. Annual difference should be around +8.81 bcf/d (i.e., -11.54 bcf/d in 2020 vs. -20.35 bcf/d in 2019) - see the chart below.

Source: Bluegold Research estimates and calculations. Please note that total SD balance does not equal storage flows.

Storage

Currently, we expect the EIA to report a draw of 93 bcf next week (final estimate will be released on Wednesday). Overall, at this point in time, we expect storage flows to average -124 bcf over the next two weeks (three EIA reports). Natural gas storage "deficit" relative to the five-year average is currently projected to expand from +74 bcf today to +222 bcf for the week ending January 24.

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.