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September 11, 2017

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Natural Gas Demand Bearish Throughout The Weekend As Hurricane Irma Suppresses Powerburn But Demand To Rise Throughout The Week As Temperatures Warm; LNG Feedgas Demand To Sabine Pass Surges Back Above 60-Day Average; Follow Celsius Energy On Twitter


6:00 AM EDT, Monday, September 11, 2017
First off, Celsius Energy joined twitter at @CelsiusEnergyFM. Follow the account for commentary and updates on the energy sector and the weather as well as trade alerts for subscribers. It was a bearish Friday across the energy sector as both oil and natural gas took a beating. Crude oil finished down $1.61 or 3.3% to settle at $47.48/barrel, its lowest close in a week, as slow resumption of refinery activity continued to rattle investors. Nonetheless, the commodity did finish the week with a small 0.4% gain, its first weekly gain in 6 weeks. Natural gas, meanwhile, dropped 9 cents or a similar 3.1% to settle at $2.89/MMBTU. Unlike oil, however, natural gas dropped 5.9% on the week due to fears of significant demand destruction as Hurricane Irma bears down on the major September demand center of Florida.


After reaching a new 52-week high up more than 15% since May 1 early in the week, my Oil & Natural Gas portfolio dropped 1.5% on Friday to reduce gains back to 13%. However, the losses were mitigated by several trades that I made throughout the week, including a rare day trade on Friday. I have published a new Investing Commentary for subscribers on my Portfolio Page HERE discussing these trades, my current holdings, as well as my strategy for the upcoming week. To learn more about subscribing and helping to support the site, please click HERE.


The EIA will release its weekly Natural Gas Storage Report for September 2-8 this Thursday at 10:30 AM EDT. I am projecting a preliminary +84 BCF natural gas storage injection. Such a build would be 21 BCF bearish versus the 5-year +63 BCF build and 26 BCF larger than last year's +58 BCF injection. Such an injection would be the second largest in the last 5 years, behind only 2014's +91 BCF build, as shown in the Figure to the right. Should a +84 BCF injection verify, natural gas inventories would rise to 3304 BCF while the storage surplus versus the 5-year average, after dropping as low as +8 BCF on August 25, would climb back up to +37 BCF after a second consecutive bearish build. It would be the first time we have seen consecutive bearish weekly injections since the two-week period ending April 28, 2017. The year-over-year storage deficit, meanwhile, would contract to -186 BCF, which would be the lowest since December 2, 2016. The driving force behind the bearish injection is multifold, beyond the traditional industrial and commercial demand suppression that comes with Labor Day. First, after a warm start, the September 2-8 period cooled dramatically to finish the week with record low temperatures across much of the Southeast Thursday morning with readings well into the 40s as far south as Tennessee. The mean population-weighted nationwide 7-day average temperature for the week was 73.2F, 0.4F cooler than last week and just below the long-term normal of 73.3F. On the supply side, natural gas production surged following temporary outages associated with Harvey and I expect it to average 73.5 BCF/day for the week of September 2-8, which would be a new 2017 high. Contributing to this recovery was the initiation of service of the Rover Natural Gas Pipeline which transported a total of 4.25 BCF of natural gas last week in its first week in service, still just a fraction of its 22 BCF/week capacity. Click HERE for daily Rover Pipeline supply data. On the demand side, LNG feedgas demand to Sabine Pass tallied just 4.2 BCF on the week, down over 8 BCF from the previous week, thanks to a shutdown of the shipping channel used by LNG tankers to access the facility, forcing the plant to restrict feedgas. On Wednesday evening, the LNG tanker Rioja Knutsen finally docked at the port on Wednesday evening, and feedgas demand finally rebounded on Thursday, jumping to 1.1 BCF/day, preluding a return to near the 60-day average of 1.8 BCF/day over the weekend. Nonetheless, between new supply entering via the Rover Pipeline and the sharp decline in LNG feedgas from the previous week, I calculate that supply/demand balance for September 2-8 loosened by an ugly 12.3 BCF between these two variables alone, contributing to the large injection. This remains a preliminary projection and will be revised further over the next 48 hours. Click HERE for more on this week's projection or click HERE to read a commentary I published on Seeking Alpha featuring a detailed analysis of this week's injection (though my projection has since climbed from +80 BCF to +84 BCF since the report was published).


Over the weekend, natural gas demand improved slightly from the ugly +15 BCF/day injections of late last week as temperatures moderated somewhat across the Plains and Midwest and LNG feedgas to Sabine Pass spiked back to near the 60-day average. However, with Hurricane Irma impacting Florida and cutting power to a large portion of the state and keeping temperatures 10F-20F cooler than average across much of the Southeast, demand remained well below average, with daily injections of around +13 BCF/day, 3 BCF bearish versus the 5-year average +10 BCF/day. This demand suppression will continue today. As of early Monday morning, in excess of 2 million customers in Florida and Georgia were without power. Additionally, highs across northern Florida will only be in the upper 70s to lower 80s today, 5F-10F cooler than average, while further north amidst the drenching drain of a rapidly weakening Irma, the temperature anomalies will be even more pronounced. Atlanta, Columbia, and Charlotte will all be in the upper 60s today, 15F-20F cooler than average while Raleigh, Richmond, and Nashville will all be in the low 70s today, around 10F cooler than normal. Some of these weather-dependent demand losses will be countered by warming temperatures across the West, Plains, and New England. The high temperaturea in Boston and Minneapolis will both reach 80F today, 8F-10F warmer than normal. Across the sparsely-populated Intermountain West, Boise, Id, Salt Lake City, Ut, and Billings, Mt will all reach 90F today, 15F-20F hotter than normal. Across the far West, Sacramento and Fresno will climb into the upper 90s while Portland has an outside shot at reaching 90F, all around 10F warmer than normal. Overall, the forecast mean population-weighted nationwide temperature will reach 70.3F today, around 1F warmer than yesterday but still 1.9F cooler than normal. On the demand side, LNG feedgas demand to Sabine Pass will hold steady at 2.0 BCF/day today, back above the 60-day average and up over 1.5 BCF/day compared to the same day last week. On the supply side, volumes on the Rover Pipeline will hold stable at 0.7 BCF/day today, which is near the 1-week average. Overall, I am projecting a +13 BCF/day daily storage injection today, unchanged from yesterday despite the slight warming trend thanks to extensive power outages across the Southeast, and nearly 3 BCF bearish versus the 5-year average. Click HERE for more on today's daily storage projection and intraday natural gas inventories.


For the remainder of the week, natural gas demand will steadily rise as Irma pulls away and temperatures rebound and power outages decline. Furthermore, highs across the Plains, West, and New England will rise to well above-average, boosting late-season power demand. By Wednesday, 90 degree temperatures will reach as far north as southern South Dakota, around 25F warmer than normal. And by Friday, at or above average temperatures will be found across essentially entire eastern half of the nation. As a result, daily natural gas storage injections could fall back to near +9 BCF/day by Friday, 1 BCF bullish versus the 5-year average. Projected daily storage injections for the upcoming week are shown in the Figure to the right. Nonetheless, the damage will have already been done during the first portion of the week and I am projecting a +80 BCF weekly storage injection for the week of September 9-15, 7 BCF bearish versus the 5-year average and the third consecutive bearish storage injection. Such an injection would be the 3rd largest injection in the last 5 years, ahead of +93 BCF and +92 BCF builds in 2014 and 2015, respectively. It would also be the 9th most bearish injection in the full 23 year period for which EIA storage data is available. Should it verify, natural gas inventories would rise to 3384 BCF while the storage surplus versus the 5-year average would rise to +44 BCF and the year-over-year deficit would continue its steep descent, falling to -159 BCF. The EIA will release its official injection numbers for this week on September 21 at 10:30 AM EDT. Click HERE for full details on this week's storage projection.


Looking longer term, the temperature forecast becomes more favorable by early next week. As the 10-14 day NWS forecast in the figure to the right shows, temperatures look to be well-above average across the South, particularly across Texas and the southern Plains. This is more favorable for natural gas demand than, say, if the Midwest were to see above-average readings as by mid-September only the deep South can expect to see a real bump in cooling demand from such anomalies. As a result, I expect the string of bearish weekly natural gas storage injections to end at 3 with projections for the weeks of September 16-22 and September 23-29 at +73 BCF and +85 BCF, 12 BCF and 6 BCF smaller than the 5-year average, respectively. Click HERE for more on the extended temperature outlook. Temperature-independent factors that could influence these projections will be whether LNG feedgas to Sabine Pass stabilizes near 2.0 BCF/day or even climbs back to near capacity of 2.8 BCF/day should all 4 trains become active, whether the Cove Point LNG plant in Maryland comes online this month, and whether Rover Pipeline volumes out of the Marcellus shale hold near their current 0.7 BCF/day--less than 25% capacity--or climb further. Regarding the latter, should volumes hold under 1.0 BCF/day, I feel that natural gas supply/demand balance can remain favorable, but any growth higher than that could lead to significant loosening. Stay tuned. Regardless, should these projections verify, the natural gas storage surplus versus the 5-year average would fall back to near +28 BCF by the end of September, setting up a possible transition to a storage deficit in October. For this reason, while I have been near-term bearish on natural gas for the past two weeks or so--and have traded accordingly--due to the combination of cooler nationwide temperatures, two hurricane landfalls, weak LNG feedgas demand, and the onset of Rover volumes out of the Marcellus shale, my long-term bullish thesis remains intact as the commodity remains at a 10+% undervaluation according to my Fair Price Model