September 2020: Natural Gas Supply-Demand Balance Overview And Forecast

The U.S. Energy Information Administration has recently released their natural gas monthly statistics for June 2020. In this article, we will briefly review their consumption and exports figures, then look at our estimates for July and August, and conclude with our latest forecast for September, October, and November. June Overview […]

The U.S. Energy Information Administration has recently released their natural gas monthly statistics for June 2020. In this article, we will briefly review their consumption and exports figures, then look at our estimates for July and August, and conclude with our latest forecast for September, October, and November.

June Overview

Aggregate natural gas demand (consumption + exports) in contiguous United States edged down by -0.16% y-o-y from 2,472 bcf (or 82.40 bcf/d) in June 2019 to 2,468 bcf (or 82.27 bcf/d) in June 2020. Total natural gas consumption increased by only 0.84% despite the fact that total “energy demand” (measured in total degree-days or TDDs) was up 7.8% y-o-y. Exports dropped by 6.04% from 360.1 bcf (or 12.0 bcf/d) in June 2019 to 338.3 bcf (or 11.28 bcf/d) in June 2020.

Overall, the year-over-year average daily rate of consumption of dry natural gas in June 2020 increased in two of the four consuming sectors, and it decreased in the other two. Deliveries of natural gas by consuming sector in June 2020 were as follows:

  • Residential deliveries: 136 Bcf for the month, or 4.5 Bcf/d. Up 5.4% compared with 4.3 Bcf/d in June 2019. Residential deliveries were the highest for the month since 2009.
  • Commercial deliveries: 133 Bcf for the month, or 4.4 Bcf/d. Down 8.3% compared with 4.8 Bcf/d in June 2019. Commercial deliveries were the lowest for the month since 2012.
  • Industrial deliveries: 604 Bcf for the month, or 20.1 Bcf/d. Down 4.6% compared with 21.1 Bcf/d in June 2019. Industrial deliveries were the lowest for the month since 2016.
  • Electric power deliveries: 1,047 Bcf for the month, or 34.9 Bcf/d. Up 5.4% compared with 33.1 Bcf/d in June 2019. Electric power deliveries were the highest for the month since EIA began using the current definitions for consuming sectors in 2001.

Please note that the above figures include Alaska.

Net natural gas imports (imports minus exports) were -153 Bcf, or -5.1 Bcf/d, in June 2020, making the United States a net exporter. Natural gas imports and exports in June 2020 were as follows:

  • Total imports: 185 Bcf for the month, or 6.2 Bcf/d. Down 8.0% compared with 6.7 Bcf/d in June 2019. The average daily rate of natural gas imports was the lowest for the month since 1993.
  • Total exports: 338 Bcf for the month, or 11.3 Bcf/d. Down 6.1% compared with 12.0 Bcf/d in June 2019, the first year-to-year decrease for any month since October 2014. Despite this year-to-year decrease, the average daily rate of natural gas exports was the second highest for the month since EIA began tracking monthly exports in 1973. Liquefied natural gas (LNG) had been driving the year-on-year increase in exports since 2016. However, LNG exports in June 2020 were down 23.2% compared with June 2019, the first year-to-year decrease for any month since January 2016. In June 2020, the United States exported 3.6 Bcf/d of LNG to 17 countries, down from 27 countries in May 2020. Furthermore, about 46 LNG cargoes from the United States were canceled in June, as global LNG suppliers have reduced shipments in response to a decline in LNG demand worldwide.

Overall, the volume of total exports is now equivalent to 15.86% of national natural gas consumption on a monthly basis. On a 12-month average basis, exports now equate to around 14.30% of total demand (see the chart below).

Source: EIA, Bluegold Research estimates and calculations

Source: EIA, Bluegold Research estimates and calculations

Estimates And Forecast

After increasing by 0.8% y-o-y in June, we estimate that total natural gas consumption (in Lower-48 states) then increased by 3.5% y-o-y in July (to 80.23 bcf/d) and then edged down by 0.5% y-o-y in August (to 78.05 bcf/d).

Currently, we expect natural gas consumption in contiguous United States to decline (in annual terms) over the next three months. However, frequent changes in the short-range weather models will obviously generate some volatility. Under the latest weather forecasts, we project that total U.S. natural gas consumption will decline by 5.5% y-o-y (on average) over the next three months (September to November).

However, the rate will vary significantly for each month. At this moment in time, our consumption forecasting models generate the following results:

  • September: 71.58 bcf/d (-2.91% y-o-y or -2.15 bcf/d y-o-y);
  • October: 71.83 bcf/d (-4.07% y-o-y or -3.05 bcf/d y-o-y);
  • November: 82.84 bcf/d (-9.50% y-o-y or -8.69 bcf/d y-o-y).

Please note that there is a large degree of uncertainty to that forecast, as weather models can generate sporadic changes in the number of cooling-degree-days (CDDs). It is also important to remember that changes in HDDs have 3x stronger effect on natural gas consumption than changes in CDDs.

Source: EIA, Bluegold Research estimates and calculations

We believe that LNG feedgas flows have already reached a long-term bottom and should be trending higher (slowly) from now on. We currently expect total exports to average 13.94 bcf/d in the September to November period (+0.5% y-o-y).

Total Balance

What about the supply? After all, it is not the demand which is driving the price, but the interaction between demand and supply.

In June 2020, for the second consecutive month, dry natural gas production decreased year to year for the month. The preliminary level for dry natural gas production in June 2020 was 2,650 bcf, or 88.3 Bcf/d. This level was 2.9 Bcf/d (-3.1%) lower than the June 2019 level of 91.2 Bcf/d. Despite this year-to-year decrease, the average daily rate of dry production was the second highest for the month since the EIA began tracking monthly dry production in 1973.

We currently expect total supply (production + imports) in contiguous United States to average 92.11 bcf/d over the next three months (September-October-November), -9.48 bcf/d y-o-y.

Source: EIA, Bluegold Research estimates and calculations

Overall, we believe that over the next three months (September to November), total supply will be declining faster than total demand (on an annualized basis), ensuring that total supply-demand balance will be tighter relative to 2019. However, total supply-demand balance will vary significantly for each month. Currently, we estimate that annual supply-demand “deficit” will amount to -5.34 bcf/d in September, -6.53 bcf/d in October, and -2.92 bcf/d in November.

Annual storage “surplus” is currently projected to shrink by -184 bcf by October 23. Storage “surplus” vs. 5-year average is projected to shrink by -83 bcf over the same period.

Source: EIA, Bluegold Research estimates and calculations

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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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