Natural Gas Market: Total Natural Gas Demand Has Passed Its Lowest Point And Is Now Projected To Trend Higher


The Weather

Last week

Last week (ending November 6), the number of heating degree days (HDDs) dropped by 29.3% w-o-w (from 105 to 74). We estimate that total “energy demand” (as measured in total degree days, or TDDs) was 38.3% below last year’s level and 18% below the 30-year average.

This week

This week (ending November 13), the weather conditions are once again warming up in the contiguous United States, but only slightly. We estimate that the number of nationwide HDDs will edge down by 8.4% w-o-w (from 74 to 68). Total average daily consumption of natural gas (in the contiguous United States) should be somewhere between 75 bcf/d and 78 bcf/d. Total “energy demand” (measured in TDDs) should plunge by 51.1% y-o-y, while the deviation from the norm will remain negative and will actually expand (from -18% to -26%).

Next week

Next week (ending November 20), the weather conditions are expected to start cooling down. The number of nationwide HDDs is currently projected to surge by 48.7% w-o-w (from 68 to 101). However, we estimate that total “energy demand” (measured in TDDs) should still decline in annual terms (-18.6%), while the deviation from the norm will moderate substantially, but will remain negative (-15.3%) – 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 below the norm (on average) – see the chart below. However, there is a major disagreement between the models in terms of scale: the latest GFS model (00z run) is projecting 79.4 bcf/d of potential natural gas consumption (on average, over the next 15 days), while the ECMWF model (00z run) is projecting 77.1 bcf/d over the same period.

Source: NOAA, ECMWF, Bluegold Research

The latest extended-range ECMWF model showed fewer HDDs in all five forecast weeks, but HDDs are still projected to trend higher. Consumption-wise, the extended-range model was bearish vs. previous update (see the chart below). Notice, however, that there is already a minor bullish divergence between the latest extended-range model and the latest short-range model.

Source: NOAA, ECMWF, Bluegold Research

Overall, projected short-range TDDs remain below last year’s level (-27.3%) as well as below the norm (-15.5%). Actual TDDs are currently projected to trend higher but remain mostly below the norm until November 24 (at least).

Source: NOAA, ECMWF, Bluegold Research

Over the next 15-day period, total natural gas demand (consumption + exports) is expected to average 100.2 bcf/d (adjusted for probability), which is 10.2 bcf/d lower than a year ago. Consumption (7-day average) projected to increase by +15.4% over the next 7 days (from 72.6 bcf/d today to 83.8 bcf/d on November 18). Overall, total natural gas demand has already passed its lowest point (on November 8) and is now projected to trend higher, but is also currently projected to remain mostly below last year’s level (see the chart below).

Source: Bluegold Research estimates and calculations

Supply

Dry gas production is currently estimated at 87.2 bcf/d (-0.4 bcf/d from yesterday). Net supply (calculated as production + imports – exports) has dropped below the 5-year average (see the chart below) and is currently estimated at 77.7 bcf/d (-10.9 bcf/d y-o-y).

We currently expect total supply (production + imports) in the contiguous United States to average 94.81 bcf/d over the next three months (November-December-January), -8.49 bcf/d y-o-y.

Source: Bluegold Research estimates and calculations

Storage Report

This week, the U.S. Energy Information Administration should report a smaller change in natural gas storage compared to the previous week. We anticipate to see a draw of 4 bcf (6 bcf larger than the comparable figure in the ICE’s latest report for the EIW-US EIA Financial Weekly Index, 16 bcf larger than a year ago and 37 bcf larger vs. the 5-year average for this time of the year). Annual storage surplus is projected to shrink by 9 bcf by December 11. The storage surplus relative to the 5-year average is projected to shrink by 30 bcf over the same period (from +164 bcf to +134 bcf).

Storage Level Outlook

Source: Bluegold Research estimates and calculations

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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.

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