Natural Gas Market: Production Is Decreasing, But Demand Remains Weak

Summary

• This Thursday, we expect the EIA to report 2,314 bcf of working gas in storage for the week ending May 1.
• We anticipate to see a build of 104 bcf, which is 8 bcf larger than a year ago and 30 bcf larger vs. the 5-year average.
• Annual storage "surplus" is projected to shrink by -19 bcf by June 5. However, storage "surplus" vs. 5-year average is actually projected to expand by +77 bcf over the same time.
• Production is decreasing, but demand remains weak and projected TDDs are trending down.
• This idea was discussed in more depth with members of my private investing community, Natural Gas Fundamentals. Get started today »

The Weather

Last week

Last week (ending May 1), the number of heating degree days (HDDs) dropped by 35% w-o-w (from 75 to 49), while the number of cooling degree days (CDDs) increased by 17% (from 17 to 20). However, we estimate that total energy demand (as measured in total degree days, or TDDs) was 17% below last year's level, but mostly in line with the 30-year average for this time of the year.

This week

This week (ending May 8), the weather is cooling down, but only slightly. We estimate that the number of nationwide HDDs will edge up by 1.6% w-o-w, while the number of cooling degree-days (CDDs) will jump by more than 50% w-o-w (from 20 to 30). Total average daily consumption of natural gas (in contiguous United States) should be somewhere between 82 bcf/d and 86 bcf/d, some 3.9 bcf/d higher than in the same week last year. Total energy demand (measured in TDDs) should be some 25% above the norm and as much as 31% above last year's level.

Next week

Next week (ending May 15), the weather conditions are expected to get significantly colder. The number of HDDs is currently projected to jump by 21% w-o-w (from 49 to 60), while the number of CDDs should drop by 26% w-o-w (from 30 to 22). Total energy demand (measured in TDDs) should rise by 24% y-o-y, while the deviation from the norm will increase to +34% (see the chart below).

Source: Bluegold Research estimates and calculations

The latest numerical weather prediction models (Wednesday's short-range 00z runs) agree that, over the next 15 days, TDDs should remain above the norm (on average) - see the chart below.

Source: NOAA, ECMWF, Bluegold Research

However, projected TDDs are trending down and there is a minor disagreement between the models

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