Natural Gas: Annual Storage Surplus Could Disappear By Mid-January

This report covers the week ending November 27, 2020.

Total Supply-Demand Overview

We estimate that the aggregate demand for U.S. natural gas (consumption + exports) totaled around 713 bcf (or 101.8 bcf/d) for the week ending November 27 (down -0.7 bcf/d w-o-w (week over week) and down -4.5 bcf/d y-o-y (year over year)). The deviation from the norm remained positive but narrowed to +6.2 bcf/d (from +11.5 bcf/d a week earlier).

We estimate that the aggregate supply of natural gas in the contiguous United States (production + imports) totaled around 697 bcf (or 99.5 bcf/d) for the week ending November 27 (up +0.1 bcf/d w-o-w but down -3.9 bcf/d y-o-y). The deviation from the norm remained positive but narrowed slightly +10.4 bcf/d to +10.0 bcf/d.

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

December 4

  • Total supply: 99.4 bcf/d (-5.2 bcf/d y-o-y)
  • Total demand: 117 bcf/d (+1.0 bcf/d y-o-y)

December 11

  • Total supply: 98.2 bcf/d (-6.0 bcf/d y-o-y)
  • Total demand: 119.7 bcf/d (+0.6 bcf/d y-o-y)

Notice that total supply is projected to decline (in annual terms), while total demand is projected to increase. Therefore, supply-demand balance is projected to be tighter over the next two weeks (vs. 2019).

Please note that these forecasts are updated daily.

Source: Bluegold Research estimates and calculations

Natgas consumption (7-day average) is projected to increase by +17.8% over the next 7 days (from 84.3 bcf/d today to 99.4 bcf/d on December 4). LNG feedgas flows remain new all-time high – 10.0 bcf/d. We currently expect total demand (consumption + exports) in the contiguous United States to average 123.01 bcf/d over the next three months (December-January-February), +3.29 bcf/d y-o-y.

Source: Bluegold Research estimates and calculations

Source: Bluegold Research estimates and calculations

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).

This week, the weather conditions have cooled down in the contiguous United States but only slightly. We estimate that the number of nationwide HDDs has edged up by 5.3% w-o-w (from 107 to 113). However, total “energy demand” (measured in total degree days – TDDs) should be some 16.8% below last year’s level and 19.3% below the norm.

In absolute terms, projected short-range TDDs are below last year’s level (-3.3%) as well as below the norm (-7.6%). Actual TDDs are currently projected to trend higher until Dec. 1 but are then projected to trend lower.

Source: Bluegold Research estimates and calculations

Storage

Currently, we expect the EIA to report a draw of 5 bcf next week (a final estimate will be released on Wednesday). Overall, at this point in time, we expect storage flows to average -94 bcf over the next three weeks (four EIA reports). Annual storage surplus is projected to shrink by 224 bcf by January 1. Storage surplus vs. five-year average is projected to shrink by 191 bcf over the same period (from +286 bcf to +95 bcf).

Source: EIA, 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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