10
Apr

Thursday Night Gas Storage Review Plus A Little Demand Chat

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Commodity Watch:

  • Natural Gas: May contract gas closed down 5 cents at $10.01 after spiking as high as $10.31 after the EIA reported gas in storage fell 14 Bcf. The Street was looking for a withdrawal of 13. I still await a drop in natural gas prices back into the mid $8s in the before the end of May (waiting in vain so far) and to that end I've laid out a brief piece on gas demand growth (or lack thereof) below the normal gas graphs section to be read in conjunction with last week's Supply Side slide show. Have a great night! 
  • Strip Prices:
    • 12 month: $10.41
    • 24 month: $9.91
  • Street Prices:
    • 2008E: $7.99 (1Q08 actual was $8.74)
    • 2009E: $8.06
    • 2010E: $8.04

 
gas-table-040408.jpg

Key Takeaways:

  1. The withdrawal was in line with consensus.
  2. Storage fell below the five year average for the first time in recent memory but that was expected. We should be near the bottom on the five year average comparison and should return to surplus over the next 4 to 6 weeks given rising supply.
  3. 12 of the 14 B's that  were pulled from storage came from the Eastern consuming region. That region is  forecast to see a 33% reduction in heating degree days this week (which would be reflected in next Thursday's numbers). As long as the CPC doesn't revise the numbers much higher we may have seen our last withdrawal of the season. 

 

Easy Storage Comps Next Two Weeks. Next week last year (a horrible way to start a sentence but follow me on this) it got cold and this prompted a return to withdrawals. The week after that saw no change; this gives us two easy comps to start rebuilding storage against. 

ng-shoulder-season-040408.jpg

The Gas Charts:

gas-graphs-040408.jpg

A Little Demand Commentary. As I've often discussed, supply is running 4.1 Bcfgpd high to year ago levels due to the success of a number of resources plays. Enough about that. In case you missed my last discourse on supply click here. With today's gas storage review I thought I'd spend just a brief bit of time, nothing in depth at all, on the demand side of the equation. Demand is hard to pin down and a lot of it simply depends on the weather but here's a brief overview. 

gas-demand-0401008.jpg

Gas Demand Has Been Pretty Flattish. As you can see from the pie charts and subsequent table above, while demand has shifted around, there has not been a lot of growth in natural gas consumption this decade. Gas demanded for electrical generation has grown the most while high natural gas prices had yielded lower consumption from the industrials until last year when we saw an agricultural based bounce.

Looking ahead, the 0.6% growth in annualized demand may be a little unfair to use as a yardstick for 2008 growth since we've had a colder than normal start to the year and another increase in gas-fired generation is expected. But it is hard to imagine 2008 chalks up more than 2.0 Bcfgpd growth, especially with elevated prices pinching the industrial component (first or second largest gas consuming sector depending on the year). 

Heating Related Gas Demand - Not Growing. The Peaks on the charts below depend on weather but note the lack of off season (summer) growth represented by the sequence of incredibly similar troughs in the two charts below....this is appliance efficiency. More parts of the U.S. become "gassified" (piped gas becomes available) each year. The peaks on the chart are weather dependent so cold ones have higher peaks. But the bottoms, when the heat is off and the gas-fired water heaters, dryers, cooktops, grills etc are running should be rising if more regions are using gas...but those troughs look pretty flat to me. This one is a wild card but does not really come back into play until next winter...like I wrote, summer demand is just not growing significantly.

ng-demand-heating-041008.jpg

 

Industrial Demand Suffers With High Prices. Somewhat dependent on weather but mostly demand here is determined by economics. If I make polyethylene or ammonia, do alter production if gas is $6 or gas is $10 / Mcf? You betcha. You can really see it if you look at the surge in 2002 relative to the red dot (price) and then look at 2005. Red dot go up, consumption go down. Now, in this week economic environment, with the red above any of those on the chart, you've got to wonder what the blue bar for 2008 looks like. I would not look for a drastic drop as much of the easy "demand destruction" has already taken place but it's unlikely to be a source of growth this year. Call flat to be conservative, though it could easily be down half a Bcfgpd. 

ng-demand-industrial-041008.jpg

Electricity Demand: Growing. I have little, barring a wimpy summer, that gas-fired generation will again surge to new highs this year. Coal plant shutdowns of late and higher than normal nuke maintenance almost ensure growth this summer and NOAA is looking for a long hot summer. So you may see 1 Bcfgpd of growth here. 

ng-demand-electricity-041008.jpg

Other Demand Running 5 Bcfgpd and growing very slowly. This includes gas fired vehicles (very small demand) and lease and plant fuel (part of getting the gas to market and increasing very slowly).

So In A Nutshell, Total Demand, Barring Out of Bounds Weather Is Growing But Not as Fast As Supply. We may be in the position of having a balanced market depending on what Canada and LNG do but demand is simply not growing as fast as recently domestic supply growth, again click the link to the last supply comments if you have not checked it out.   

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