This report covers the week ending September 11, 2020.

Total Supply-Demand Overview

We estimate that the aggregate demand for U.S. natural gas (consumption + exports) totaled around 594 bcf (or 84.9 bcf/d) for the week ending September 11 (-1.0 bcf/d w-o-w (week over week) and -3.7 bcf/d y-o-y (year over year)). The deviation from the norm remained positive and actually increased slightly from +7.1 bcf/d to +8.4 bcf/d.

We estimate that the aggregate supply of natural gas in the contiguous United States (production + imports) totaled around 659 bcf (or 94.1 bcf/d) for the week ending September 11 (+0.9 bcf/d w-o-w but -5.9 bcf/d y-o-y). The deviation from the norm remained positive and increased slightly from +6.3 bcf/d to +6.9 bcf/d.

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

September 18

  • Total supply: 94.1 bcf/d (-6.1 bcf/d y-o-y)
  • Total demand: 84.2 bcf/d (-2.3 bcf/d y-o-y)

September 25

  • Total supply: 94.0 bcf/d (-6.6 bcf/d y-o-y)
  • Total demand: 82.4 bcf/d (-3.8 bcf/d y-o-y)

Please note that these forecasts are updated daily.

Source: Bluegold Research estimates and calculations

Natgas consumption (7-day average) is projected to decline by -1.6% over the next 7 days (from 71.9 bcf/d today to 70.7 bcf/d on September 18). Total demand (consumption + exports) is currently projected to reach a near-term low on September 20.

Source: Bluegold Research estimates and calculations

This week, the weather conditions have cooled down substantially across the contiguous United States. We estimate that the number of nationwide cooling degree days (CDDs) dropped by 10.5% w-o-w (from 77 to 69). Total energy demand (measured in total degree days – TDDs) should be 0.4% below last year’s level, but 19.4% above the norm. However, TDDs deviation from the norm is generally projected to decline.

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Indeed, the chart below illustrates that there is currently a “bearish divergence” between the number of projected TDDs and the price level/forward curve. The market continues to price in a rather bullish scenario for the upcoming withdrawal season (cold winter + sluggish production + record-high LNG exports). We are less “optimistic” (at this moment in time) as our EOwS storage index remains above market expectations. Because the market has already priced in a rather bullish storage level outlook, it now risks being disappointed – especially, if the weather forecast remains flat.

Source: Bluegold Research estimates and calculations

Non-Degree-Day Factors

In the week ending September 11, 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 (5.7 GW per day on average).
  • The average spread between natural gas and coal plunged by -$0.281 per MMBtu (as the price of natural gas went down (w-o-w), while the price of coal remained relatively unchanged). We estimate that coal-to-gas switching averaged around 7.8 bcf/d (-0.2 bcf/d vs. 2019 but +1.3 bcf/d vs. the five-year norm).
  • Solar wind and hydro generation was stronger (vs. a year ago). On balance, in the week ending September 11, 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 +3.6 bcf/d, which was 0.5 bcf/d below last year’s level.

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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), but mostly due to base effects. At the same time, renewable generation will start to get stronger from mid-September (due to seasonal factors), while nuclear generation will begin to get weaker (due to scheduled maintenance).

Storage

Currently, we expect the EIA to report a build of 84 bcf next week (a final estimate will be released on Wednesday). Overall, at this point in time, we expect storage flows to average +83 bcf over the next three weeks (four EIA reports). Annual storage “surplus” is projected to shrink by -105 bcf by October 16. Storage “surplus” vs. five-year average is projected to shrink by -9 bcf (over the same period).

Source: EIA, Bluegold Research estimates and calculations

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Disclosure: I am/we are short 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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