U.S. Natural Gas Market: Demand Is Picking Up, But Slowly

The Weather

Last week

Last week (ending November 13), the number of heating degree days (HDDs) edged down by 1.4% w-o-w (from 74 to 73). However, we estimate that total “energy demand” (as measured in total degree days, or TDDs) was as much as 48% below last year’s level and 23% below the 30-year average.

This week

This week (ending November 20), the weather conditions are cooling down in the contiguous United States. We estimate that the number of nationwide HDDs will surge by 50% w-o-w (from 73 to 110). Total average daily consumption of natural gas (in the contiguous United States) should be somewhere between 84 bcf/d and 86 bcf/d. However, total “energy demand” (measured in TDDs) should drop by 12.2% y-o-y, while the deviation from the norm will remain negative but will moderate noticeably (from -23% to -10%).

Next week

Next week (ending November 27), the weather conditions are expected to cool down again but less severely. The number of nationwide HDDs is currently projected to increase by 11.4% w-o-w (from 110 to 123). However, we estimate that total “energy demand” (measured in TDDs) should still decline in annual terms (-9.5%), while the deviation from the norm will remain negative (-10.9%) – 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 80.2 bcf/d of potential natural gas consumption (on average, over the next 15 days), while the ECMWF model (00z run) is projecting 81.6 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. Notice, however, that there is already a major bullish divergence between the latest extended-range model and the latest short-range model – particularly in the Nov. 27 – Dec. 1 period (see the chart below).

Source: NOAA, ECMWF, Bluegold Research

In absolute terms, projected short-range TDDs remain below last year’s level (-12.9%) as well as below the norm (-15.6%). Actual TDDs are currently projected to trend higher but remain mostly below the norm until December 1 (at least).

Source: NOAA, ECMWF, Bluegold Research

Over the next 15-day period, total natural gas demand (consumption + exports) is expected to average 103.8 bcf/d (adjusted for probability), which is 4.2 bcf/d lower than a year ago. Consumption (7-day average) projected to decreased by -2.7% over the next 7 days (from 87.2 bcf/d today to 84.8 bcf/d on November 25). 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 91.5 bcf/d (-0.7 bcf/d from yesterday). Net supply (calculated as production + imports – exports) has risen above the 5-year average (see the chart below) and is currently estimated at 81.6 bcf/d (-7.5 bcf/d y-o-y).

We currently expect total supply (production + imports) in the contiguous United States to average 96.78 bcf/d over the next three months (November-December-January), -6.51 bcf/d y-o-y.

Source: Bluegold Research estimates and calculations

Storage Report

This week, the U.S. Energy Information Administration should report a larger change in natural gas storage compared to the previous week. We anticipate to see a build of 18 bcf (2 bcf smaller than the comparable figure in the ICE’s latest report for the EIW-US EIA Financial Weekly Index, 84 bcf larger than a year ago and 42 bcf larger vs. the 5-year average for this time of the year). Annual storage surplus is currently projected to shrink by 29 bcf by December 18. The storage surplus relative to the 5-year average is projected to shrink by 27 bcf over the same period (from +218 bcf to +191 bcf).

Key Market Variables (change, y-o-y)

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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