Last week (ending February 14), the number of heating degree days (HDDs) jumped by 15.4% w-o-w (from 157 to 181). However, we estimate that total energy demand (as measured in total degree days, or TDDs) was 3.6% below last year’s level, but mostly within the 30-year norm. Cooling demand remained too weak to have a meaningful impact on natural gas consumption.
This week (ending February 21), the weather conditions will get slightly warmer. We estimate that the number of nationwide HDDs will edge down by 3.4% w-o-w (from 181 to 174). Total average daily demand for natural gas should be somewhere between 120 bcf/d and 125 bcf/d, which is approximately 14.4% above the 5-year average for this time of the year. However, total energy demand (measured in TDDs) should be as much as 11.8% below last year’s level, yet 2.5% above the 30-year norm.
Next week (ending February 28), the weather conditions are expected to continue to get warmer, but only slightly. The number of HDDs is currently projected to decline by only 2.4% w-o-w (from 174 to 170). In annual terms, total energy demand (measured in TDDs) is currently expected to drop by around 7.0%. At the same time, the deviation from the norm should remain positive at approximately +5.3%, which will be the third consecutive “bullish” (weekly) deviation from the norm since December 20, 2019 (see the chart below).
Total Energy Demand
Source: Bluegold Research estimates and calculations
Total Supply-Demand Balance
Overall, the latest numerical weather prediction models (Wednesday’s short-range 00z runs) agree that over the next 15 days, TDDs should remain above the norm (on average).
Source: NOAA, ECMWF, Bluegold Research
However, there is a minor disagreement in terms of scales: the latest GFS model (06z run) is projecting 109.0 bcf/d of potential natural gas consumption (on average over the next 15 days), while the ECMWF model (00z run) is projecting 108.3 bcf/d.
Overall, over the next 15-day period, total demand (when adjusted for probability) is expected to average 124.0 bcf/d (some 20.2% above the 5-year average), supported (in part) by robust LNG sales and growing pipeline exports into Mexico.
Indeed exports growth should help balance the US market, potentially lifting prices in summer 2020. However, any potential growth in southbound volumes will depend on the completion of key pipeline projects required to access Mexico’s new end users.
Source: Bluegold Research estimates and calculations
Non-degree-day factors have a minor bullish impact on natural gas consumption in both relative and absolute terms. We estimate that, at the current spread between natural gas and coal, coal-to-gas switching must be averaging approximately 8.1 bcf/d (0.8 bcf/d above last year’s level and 1.4 bcf/d above the 5-year average). Additionally, nuclear outages are spurring some extra consumption in the Electric Power sector. Indeed, the bullish impact from seasonal maintenance at nuclear power plants is likely to increase in the nearest future as nuclear outages are rising and should continue to rise until mid-April (at least) – see the chart below.
However, stronger wind, hydro, and solar generation are having a negative impact on the potential power burn. On balance, however, we estimate that non-degree-day factors are currently having a minor bullish impact on potential natural gas consumption (compared to the same period in 2019). We estimate the net impact to be around +3.4 bcf/d (+0.1 bcf/d vs. 2019).
Source: Energy Information Agency
Overall, in the week ending February 21, we currently project that total unadjusted supply-demand balance in the U.S. will be looser (vs. the same week in 2019) by +5.5 bcf/d (as per EIA methodology). However, in the week ending February 28, we expect the balance to tighten up a bit to +2.2 bcf/d (see the table below).
Source: Bluegold Research estimates and calculations based on EIA methodology (Lower-48 states + Alaska). The figures in the table above are weekly averages measured in million cubic feet per day (MMcf/d). Deviations from the 5-year norm are measured in percentages. Deviations from the previous year are measured in MMcf/d. Deviations are colored in accordance with their notional effect on the price. For example, higher consumption should have a positive effect (green color), whereas higher production has a negative effect (red color). Total Balance represents the net result of the interaction between total supply and total demand. Total Balance = total supply minus total demand. Total Balance does not equal storage flows. *Total Balance deviation vs. 5-year average = total supply deviation minus total demand deviation.
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 draw of 140 bcf (3 bcf smaller than the comparable figure in the ICE’s latest report for the EIW-US EIA Financial Weekly Index, 23 bcf smaller than a year ago but 4 bcf larger vs. the 5-year average for this time of the year). Annual storage “surplus” is projected to expand by 86 bcf (in total) over the next 3 weeks (4 EIA reports): from +601 bcf today to +687 bcf in the week ending March 6.
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