Natural Gas Market Overview: Short-Range Weather Models Produce Mixed Results

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This report covers the week ending February 14, 2020.

Total Demand

We estimate that the aggregate demand for American natural gas (consumption + exports) totaled around 871 bcf for the week ending February 14 (up 3.3% w-o-w (week over week) and up 2.9% y-o-y (year over year)). The deviation from the norm remained positive and actually increased from +12.50% to +17.40%. We estimate that total demand has been above the five-year norm for 57 consecutive weeks now.

This week, the weather conditions have cooled down significantly across the Lower-48 states. We estimate that the number of nationwide heating degree-days (HDDs) jumped by 15.2% w-o-w (from 157 to 180). However, total energy demand (measured in total degree-days – TDDs) should still be some 3.7% below last year’s level, but mostly within the 30-year norm.

Consumption-wise, Friday’s 00z short-range weather models were bearish (vs. previous results). However, GFS 06z run showed abrupt “bullish changes” (see the chart below). Overall, TDDs are projected to zigzag, but remain mostly within the norm (on average).

However, there is a disagreement between the models in terms of scale. According to ECMWF-ENS (00z) model, natural gas consumption should average around 104.9 bcf/d over the next 15 days, but GFS-ENS (06z) model is forecasting 109.8 bcf/d over the same period.

The extended-range ECMWF model is still projecting above normal TDDs for most of March but consumption-wise, the latest model was mostly neutral (vs. previous update).

Source: NOAA, ECMWF, Bluegold Research estimates and calculations;

Overall, we estimate that next week (ending February 21), total demand will edge up by 1.1% w-o-w and will rise by 2.8% in annual terms (see the chart below). The deviation from the norm should remain relatively unchanged.

Source: Bluegold Research estimates and calculations

Non-degree-day factors

Non-degree-day factors are slightly 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. In the week ending February 14:

  • Nuclear outages were mostly below the norm (4.3 GW per day on average) – see the chart below. However, it is important to note that nuclear outages have already reached a near-term low and should begin to rise (slowly) until mid-April (at least).
  • The average spread between natural gas and coal dropped by -$0.049 per MMBtu (as the price of natural gas declined, while the price of coal remained relatively unchanged). We estimate that coal-to-gas switching averaged around 8.1 bcf/d this week (+0.8 bcf/d vs. 2019 and +1.4 bcf/d vs. the five-year norm).
  • Hydro, solar and wind generation was mostly stronger y-o-y. On balance, in the week ending February 14, these three factors probably displaced some 200 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 +3.1 bcf/d of potential natural gas consumption in the Electric Power sector, which is 0.2 bcf/d above last year’s results.

Exports

Total exports were down 17.0% w-o-w – primarily on base effects, as LNG sales last week were abnormally strong (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, Freeport and Elba) served 12 LNG vessels with a total natural gas capacity of 42 bcf. Total LNG feed gas flows averaged 8.2 bcf/d. In annual terms, total exports increased by 18.2% in the week ending February 14.

We currently expect total exports to reach 15.05 bcf/d in April, 2020. The share of LNG should increase to 54% (see the charts below).

Source: Bluegold Research estimates and calculations

Total Supply

Dry gas production seems to have stabilized (for now). In annual terms, however, we estimate that dry gas production has been expanding for 141 consecutive weeks now, but the growth rate is weakening due to base effects. Currently, we project that dry gas production (as per EIA methodology) will average 94.95 bcf/d in February, 93.76 bcf/d in March, and 93.82 bcf/d in April. In the week ending February 14, we estimate that the aggregate supply of natural gas (production + imports) averaged around 103.5 bcf per day (up 0.9% w-o-w and up 6.1% y-o-y).

Source: Bluegold Research estimates and calculations

Total Balance

Overall, total “non-adjusted” supply-demand balance (as per EIA methodology) for the week ending February 14 should be negative at around -21.00 bcf/d, which is approximately +2.40 bcf/d looser compared to the same week in 2019 (see the chart below). Next week (ending February 21), the balance is projected to tighten up, but only slightly to +1.59 bcf/d (vs. the same week in 2019). However, the deviation from the norm should stay in the “bullish territory” – i.e., below zero (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 140 bcf next week (final estimate will be released on Wednesday). Overall, at this point in time, we expect storage flows to average -130 bcf over the next three weeks (four EIA reports). Natural gas storage “surplus” relative to the five-year average is currently projected to shrink by -58 bcf over the next three weeks from +215 bcf today to +157 bcf for the week ending March 6.

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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.

2020-02-14 14:58:00

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