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

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

July Overview

Aggregate natural gas demand (consumption + exports) in contiguous United States edged up +0.98% y-o-y from 2,797 bcf (or 90.23 bcf/d) in July 2019 to 2,825 bcf (or 91.11 bcf/d) in July 2020. Total natural gas consumption increased by 3.55% despite the fact that total “energy demand” (measured in total degree-days or TDDs) was up 4.44% y-o-y. Exports dropped by 14.8% from 393.2 bcf (or 12.70 bcf/d) in July 2019 to 335.3 bcf (or 10.81 bcf/d) in July 2020.

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

  • Residential deliveries: 118 Bcf for the month, or 3.8 Bcf/d. Up 5.4% compared with 3.6 Bcf/d in July 2019. Residential deliveries were the highest for the month since 2009.
  • Commercial deliveries: 129 Bcf for the month, or 4.2 Bcf/d. Down 9.2% compared with 4.6 Bcf/d in July 2019. Commercial deliveries were the lowest for the month since 2012.
  • Industrial deliveries: 641 Bcf for the month, or 20.7 Bcf/d. Down 1.4% compared with 21.0 Bcf/d in July 2019. Industrial deliveries were the lowest for the month since 2017.
  • Electric power deliveries: 1,374 Bcf for the month, or 44.3 Bcf/d. Up 7.9% compared with 41.1 Bcf/d in July 2019. Electric power deliveries were the highest for any 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 -122 Bcf, or -3.9 Bcf/d, in July 2020, making the United States a net exporter. Natural gas imports and exports in July 2020 were as follows:

  • Total imports: 213 Bcf for the month, or 6.9 Bcf/d. Down 7.4% compared with 7.4 Bcf/d in July 2019. The average daily rate of natural gas imports was the lowest for the month since 2014.
  • Total exports: 335 Bcf for the month, or 10.8 Bcf/d. Down 14.8% compared with 12.7 Bcf/d in July 2019, the second consecutive month with a year-over-year decrease. Despite this year-over-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) exports in July 2020 were down 47.8% compared with July 2019, as global LNG suppliers have continued to reduce shipments in response to a decline in LNG demand worldwide. In July 2020, the United States exported 2.6 Bcf/d of LNG to 20 countries.

Overall, the volume of total exports is now equivalent to 13.44% of national natural gas consumption on a monthly basis. On a 12-month average basis, exports now equate to around 14.12% 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 3.55% y-o-y in July, we estimate that total natural gas consumption (in Lower-48 states) then edged down 0.5% y-o-y in August (to 78.16 bcf/d) and then decreased by 3.2% y-o-y in September (to 71.37 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 3.1% y-o-y (on average) over the next three months (October to December).

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

  • October: 73.83 bcf/d (-1.40% y-o-y or -1.05 bcf/d y-o-y);
  • November: 84.86 bcf/d (-8.10% y-o-y or -7.50 bcf/d y-o-y);
  • December: 101.58 bcf/d (+0.3% y-o-y or +0.32 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 currently expect total exports to average 15.02 bcf/d in the October to December period (+2.87% 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 July 2020, for the third consecutive month, dry natural gas production decreased year over year for the month. The preliminary level for dry natural gas production in July 2020 was 2,781 bcf, or 89.7 Bcf/d. This level was 2.8 Bcf/d (-3.1%) lower than the July 2019 level of 92.5 Bcf/d. Despite this year-over-year decrease, the average daily rate of dry production was the second highest for the month since the U.S. Energy Information Administration (EIA) began tracking monthly dry production in 1973.

We currently expect total supply (production + imports) in contiguous United States to average 92.19 bcf/d over the next three months (October-November-December), -10.92 bcf/d y-o-y.

Source: EIA, Bluegold Research estimates and calculations

Overall, we believe that over the next three months (October to December), 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 -9.22 bcf/d in October, -4.19 bcf/d in November, and -12.34 bcf/d in December.

Annual storage “surplus” is currently projected to shrink by -171 bcf by November 13. Storage “surplus” vs. 5-year average is projected to shrink by -198 bcf over the same period.

Source: EIA, Bluegold Research estimates and calculations

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