Natural Gas Market: Next Week, The Weather Conditions Are Expected To Cool Down Considerably


The Weather

Last week

Last week (ending October 9), the number of cooling degree days (CDDs) plunged by 16.3% w-o-w (from 35 to 29). At the same time, the number of heating degree days (HDDs) increased by 14.4% w-o-w (from 26 to 30). We estimate that total “energy demand” (as measured in total degree days, or TDDs) was 11.1% below last year’s level and 9.7% below the 30-year average.

This week

This week (ending October 16), the weather conditions are cooling down in some parts of the United States and warming up in others. We estimate that the number of nationwide CDDs will increase by 5.6% w-o-w (from 29 to 31), while the number of HDDs should rise by 9.2% (from 30 to 33). 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 as much as 21.2% y-o-y, while the deviation from the norm will remain in the negative territory (-9.8%).

Next week

Next week (ending October 23), the weather conditions are expected to cool down considerably in the contiguous United States. The number of nationwide CDDs is currently projected to plunge by 22.2% w-o-w (from 31 to 24), while the number of HDDs is currently projected to surge by 54.3% w-o-w (from 33 to 51). However, total “energy demand” (measured in TDDs) should still decline in annual terms (-4.9%), while the deviation from the norm will remain negative (-3.4%) (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 above the norm (on average) and should continue to trend upward – see the chart below. However, there is currently a major disagreement between the models in terms of scale: the latest GFS model (00z run) is projecting 70.6 bcf/d of potential natural gas consumption (on average, over the next 15 days), while the ECMWF model (00z run) is projecting 68.1 bcf/d over the same period.

Source: NOAA, ECMWF, Bluegold Research

There still appears to be a bearish divergence between the forward curve (December contract) and the number of projected TDDs for November (see the chart below).

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 90.4 bcf/d (adjusted for probability), which is 1.1 bcf/d higher than a year ago. Consumption (7-day average) is projected to increase by +5.4% over the next 7 days (from 70.3 bcf/d today to 74.1 bcf/d on October 21). Overall, total natural gas demand has already passed its “seasonal trough” (on September 20) 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 86.0 bcf/d (+0.1 bcf/d from yesterday). We currently expect total supply (production + imports) in the contiguous United States to average 92.60 bcf/d over the next three months (October-November-December), -10.50 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 51 bcf (1 bcf larger than comparable figure in the ICE’s latest report for the EIW-US EIA Financial Weekly Index, 51 bcf smaller than a year ago and 36 bcf smaller vs. the 5-year average for this time of the year). Annual storage “surplus” is projected to shrink by -162 bcf by November 13. The storage “surplus” relative to 5-year average is projected to shrink by -189 bcf over the same period (from +358 bcf to +169 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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