Natural Gas Market: Production Falls To A New Multi-Year Low

Natural Gas Market: Production Falls To A New Multi-Year Low

The Weather

Last week

Last week (ending October 2), the number of cooling degree days (CDDs) increased by 6.9% w-o-w (from 33 to 35). At the same time, the number of heating degree days (HDDs) surged by 81.5% w-o-w (from 15 to 26). We estimate that total “energy demand” (as measured in total degree days, or TDDs) was as much as 26.5% below last year’s level but only 1.1% below the 30-year average.

This week

This week (ending October 9), the weather conditions have cooled down substantially in the contiguous United States. We estimate that the number of nationwide CDDs will drop by 20.4% w-o-w (from 35 to 28), while the number of HDDs should rise by 22.1% (from 26 to 32). Total average daily consumption of natural gas (in the contiguous United States) should be somewhere between 70 bcf/d and 72 bcf/d. Total “energy demand” (measured in TDDs) should drop by 10.2% y-o-y, while the deviation from the norm will remain in the negative territory (-8.4%).

Next week

Next week (ending October 16), the weather conditions are expected to warm up, but only slightly. The number of nationwide CDDs is currently projected to edge up by 4.2% w-o-w (from 28 to 29), while the number of HDDs should remain relatively unchanged (at 32). However, total “energy demand” (measured in TDDs) should still decline in annual terms (-24.6%), while the deviation from the norm will remain negative (-13.1%) (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) but should continue to trend upward – see the chart below. However, there is currently a minor disagreement between the models in terms of scale: the latest GFS model (00z run) is projecting 65.7 bcf/d of potential natural gas consumption (on average, over the next 15 days), while the ECMWF model (00z run) is projecting 65.4 bcf/d over the same period.

Source: NOAA, ECMWF, Bluegold Research

Actual TDDs are currently projected to remain mostly below the norm until November 14, but not significantly so. Projected TDDs are rising, but at a substantially slower pace than a year ago.

Source: NOAA, ECMWF, Bluegold Research estimates and calculations

Overall, over the next 15-day period, total natural gas demand (consumption + exports) is expected to average 86.3 bcf/d (adjusted for probability), which is 0.2 bcf/d higher than a year ago. Consumption (7-day average) is projected to decrease by -2.4% over the next 7 days (from 71.5 bcf/d today to 69.8 bcf/d on October 14). Overall, daily natural gas consumption is projected to reach a major “season low” on October 10 and is then projected to trend higher.

Source: Bluegold Research estimates and calculations

Supply

Production has decreased as energy firms have evacuated offshore oil/natgas platforms ahead of hurricane Delta, which is forecast to enter the GOM today. Dry gas production is currently estimated at 83.6 bcf/d (-1.3 bcf/d from yesterday).

We currently expect total supply (production + imports) in the contiguous United States to average 93.33 bcf/d over the next three months (October-November-December), -9.77 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 an injection of 71 bcf (1 bcf larger than comparable figure in the ICE’s latest report for the EIW-US EIA Financial Weekly Index, 31 bcf smaller than a year ago and 15 bcf smaller vs. the 5-year average for this time of the year). Annual storage “surplus” is projected to shrink by 190 bcf by November 6. The storage “surplus” relative to 5-year average is projected to shrink by 160 bcf over the same period (from +390 bcf to +230 bcf).

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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