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EIA Natural Gas Monthly states Consumption not Production on the rise.

|Includes: DowDuPont Inc. (DWDP)
EIA’s monthly numbers came out today and I had a couple observations about what they meant for nat gas prices. The numbers, which show production and consumption figures up until February of this year, were the first to use the new methodology set forth by the EIA.  Well it turns out the generic overpaid under worked beaurocrats in Washington had been basing their predictions on 7 year old data rather than just the past 18 months and as such had over estimated our production by 0.5bcf/d.  That's over 180 bcf that we were hearing was flooding the market that just wasn't there. 

Let’s first look at the YOY production data that came out for Feb.  Dry gas production for Feb. 2010 was 1,640 bcf, and for Feb. 2009 it was 1,636 bcf. Hardly a huge increase in supply like people would have you believe. While production numbers seemed to have stayed the same YOY, the consumption numbers are telling a completely different story. Consumption in Feb. 2010 came in at 2,512 bcf. This wasn't nearly as much as Jan. 2010’s record of 2,838 bcf but it blew last year’s February numbers out of the water. In 2009 we only consumed 2,309 bcf. So we burned up 203 bcf more this year or almost a 9% increase.  While overall production seems to have stagnated YOY, our demand has seemed to be out pacing it quite steadily in the short term. In fact the past three months have seen an average increase in year over year monthly consumption of 145 bcf, while the same stat for production is a little over 1bcf.  I see these numbers and get confused on how any pundit can go out and say there is so much extra production, when they don’t reference how much more extra consumption there is.
What seemed to keep prices low by picking up the spread between the production and consumption numbers were the record storage levels that were at play and the doubling of our imports of LNG in 2010 over 2009 levels. Storage withdrawals were up 362 bcf YTD from 2009, and net imports were up 62 bcf for the same time periods. I wouldn’t put much weight into the US getting dumped with a ton more LNG this summer though bc they were clearly just arbitraging spot prices between the UK when prices got into the high 5’s in January and February.
In February industrial consumption was up 11% from the year before, but still below pre financial crisis levels in Feb. 2008 by 6%. So there’s still some recovery to be had, especially with companies like Dow Chemical dominating their quarterly earnings yesterday on higher demand for commodity plastics and higher industrial demand from the US and Europe.
I cannot stress the importance of Electrical demand enough. Maybe not on a month to month basis, but power plants consuming natural gas should be destroying the numbers put up by their predecessor from the year before for a long time. Even more certain is that this year’s Electrical power sector will consume more natural gas than any year before it. The low $4 price range only solidifies this bc the cheaper it gets the more incentive a utility has to switch to the cleaner and easier to use natural gas (see my last article). YTD the electrical sector has already consumed a little under 9% more nat gas than last year.
Residential and Commercial will usually follow each other in consumption trends as they did this go around. Both were up around 10% YOY for February. One argument someone might throw out there to counter all these claims that consumption is moving higher was that this winter was extremely cold. I made note of that argument and discounted it last month as I will this month.  Feb. 2010 had 1% less heating days (days which require people to burn gas) than 2009 and the 40 year average according to NOAA.  So don’t try bringing me down with that.
Prices took a big hit today bc of a higher than expected inventory injection, but more importantly I think some traders were looking for any reason to see prices move higher as an indication that the changed methodology had really affected what was going on in the fundamentals. When the 0.5 bcf/d number came out it wasn't quite the big number they were hoping for, and they dumped it to the $4 floor which seemed to hold up pretty steady. I would recommend picking up futures of any month that dips under $4 especially with that hurricane season only months away. 

Another point to ponder is that contango is back in the mix after futures fought through 4 months of an inverse carry trade. The May contract is the first contract in 2010 to be priced higher than the previous month’s price at expiration.


Disclosure: no positions