Energy News Today

Natural Gas Market: Annual Storage Surplus Is Likely To Disappear By The End Of The Year

This report covers the week ending October 16, 2020.

Total Supply-Demand Overview

We estimate that the aggregate demand for U.S. natural gas (consumption + exports) totaled around 608 bcf (or 86.8 bcf/d) for the week ending October 16 (-0.1 bcf/d w-o-w (week over week) and -1.4 bcf/d y-o-y (year over year)). The deviation from the norm remained positive, but moderated from +13.2 bcf/d to +10.7 bcf/d.

We estimate that the aggregate supply of natural gas in the contiguous United States (production + imports) totaled around 643 bcf (or 91.8 bcf/d) for the week ending October 16 (-0.7 bcf/d w-o-w and -10.2 bcf/d y-o-y). The deviation from the norm remained positive but moderated slightly from +5.1 bcf/d to +4.5 bcf/d.

Here’s our latest forecast for the next two weeks:

October 23

  • Total supply: 93.1 bcf/d (-9.5 bcf/d y-o-y)
  • Total demand: 89.8 bcf/d (+0.6 bcf/d y-o-y)

October 30

  • Total supply: 93.2 bcf/d (-9.1 bcf/d y-o-y)
  • Total demand: 98.3 bcf/d (+0.4 bcf/d y-o-y)

Thus, total balance is projected to remain tighter (vs. a year ago), ensuring that the annual storage “surplus” will continue to shrink.

Please note that these forecasts are updated daily.

Source: Bluegold Research estimates and calculations

Natgas consumption (seven-day average) is projected to increase by +3.6% over the next seven days (from 71.5 bcf/d today to 74.1 bcf/d on October 23). Overall, total natural gas demand has already passed its “seasonal trough” (on September 20) and is now projected to trend higher, but is also currently projected to remain mostly below last year’s level (see the chart below).

At the same time, we should remember that the weather forecast can change very quickly and at any moment, so we need to be very careful during this time of the year. Natural gas is primarily a winter commodity. The “cold season” is the time of high volatility in natural gas markets. Changes in heating-degree days (HDDs) have a disproportionately stronger impact on consumption than changes in cooling-degree days (CDDs).

Source: Bluegold Research estimates and calculations

This week, the weather conditions have cooled down in some parts of the United States and warmed up in others. We estimate that the number of nationwide CDDs increased by 5.2% w-o-w (from 29 to 31), while the number of HDDs increased by 14.6% (from 30 to 35). Total “energy demand” (measured in total degree days – TDDs) should be as much as 19.3% below last year’s level and 8.0% below the norm.

Actual TDDs are currently projected to drop below the norm on October 20, but only temporarily. Projected TDDs are trending upward. However, there still appears to be a bearish divergence between the forward curve (December contract) and the number of projected TDDs (for November) – see the chart below.

Source: Bluegold Research estimates and calculations

Non-Degree-Day Factors

In the week ending October 16, non-degree-day factors were “bearish” (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 above the norm (19.7 GW per day on average).
  • The average spread between natural gas and coal widened by +$0.043 per MMBtu (as the price of natural gas went up (w-o-w), while the price of coal remained relatively unchanged). We estimate that coal-to-gas switching averaged around 7.7 bcf/d (-0.4 bcf/d vs. 2019 but +1.2 bcf/d vs. the five-year norm).
  • Solar and wind generation was stronger (vs. a year ago), but hydro generation was weaker. On balance, in the week ending October 16, these three factors displaced some 500 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 four non-degree-day factors was positive at around +4.8 bcf/d, which was 0.9 bcf/d below last year’s level.

Source: Bluegold Research estimates and calculations

Next week, however, it appears that the net impact from non-degree-day factors is likely to be “less bearish” (vs. 2019) – particularly due to weaker wind generation.

Storage

Currently, we expect the EIA to report a build of 48 bcf next week (a final estimate will be released on Wednesday). Overall, at this point in time, we expect storage flows to average +8 bcf over the next three weeks (four EIA reports). Annual storage “surplus” is projected to shrink by -156 bcf by November 20. Storage “surplus” vs. five-year average is projected to shrink by -210 bcf (over the same period). All our EOS storage indices remain below market expectations.

Source: EIA, Bluegold Research estimates and calculations

Disclosure: I am/we are long NG1:COM. 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.

Read More: Natural Gas Market: Annual Storage Surplus Is Likely To Disappear By The End Of The Year

2020-10-16 14:34:00

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