As expected, natural gas demand declined ~8 BCF/day over the course of the weekend as temperatures rebounded across the northern Great Plains with locations such as Minneapolis and Bismarck seeing temperatures 10-15 degrees above average yesterday. Temperatures across the rest of the Great Plains and Midwest were generally between normal and 10 degrees above normal, helping yesterday’s population-weighted mean nationwide maximum temperature reach 47F, the greatest in over a week. The warmth will shift eastward today and over the course of the week with mean daily temperatures reaching 15-20F above average across the Ohio Valley and Southeast by Wednesday and Thursday and 10-15F above average across the Northeast and Mid-Atlantic by Friday. In the warm southerly flow ahead of the next storm system, cities like Chicago and St. Louis may see low temperatures 30-35 degrees above average on Friday morning.
The western half of the nation will remain markedly below average—by 10-20 degrees—during the course of the week, but due to low population density and natural gas demand, the cold air will have only a small mitigating effect on the overall decline in natural gas demand. Indeed, the net effect of this warm-up will be a decimation of natural gas demand across the major demand centers of the eastern half of the nation and while daily withdrawals exceeded 30 BCF/day last Wednesday, by this Wednesday withdrawals will be lucky to reach 10-12 BCF/day. For the week of January 5-11, my model is projecting a net withdrawal of -132 BCF, unchanged overnight, and 15 BCF less than the estimated five-year mean withdrawal of -147 BCF.
Confidence continues to grow that this week’s January Thaw will be abruptly replaced by an expansive Arctic Airmass within the next 7-10 days. First, Over the last few days, a dramatic event known as Sudden Stratospheric Warming (SSW) has taken place across the Arctic Latitudes. SSW events occur when the stratospheric polar westerly winds abruptly slow down or reverse direction accompanied by a surge in temperature of 20F or more in the stratosphere. SSW events often precede US Arctic Outbreaks by 7-14 days, which is consistent with current model projections. Second, the snowpack across Canada is significantly deeper than at this time last year. Deep snowpacks, particularly across the source regions of Arctic Air, serve to both amplify and prolong the duration of arctic outbreaks.
The cold air will likely come in waves. The initial thrust of arctic air will occur late this week into the Rockies and Northwest, where, by the weekend, temperatures west of the Continental Divide will be 15-20 degrees below average. Over the weekend into next week, an initial arctic cold front will trail behind a storm system that will sweep northeast from Texas to the western Great Lakes. By Monday and Tuesday—January 13 & 14--below average temperatures will have reached as far east as a Michigan-to-Indiana-to-Arkansas line, but will largely miss the densely populated Northeast and Southeast where temperatures will cool to near average as a result of the inland storm track. Therefore, despite a growing pool of arctic air across the western 2/3rds of the nation but due largely to persistent warm air across the East, my models are projecting a net withdrawal for the week of January 12-18 that will be greater than this week, but still below average for the date. Currently, I am estimating a net withdrawal of -149 BCF, down 9 BCF overnight, and 28 BCF less than the estimated five-year mean withdrawal of -177 BCF.
By around Friday, January 18th, a second more potent storm system and associated arctic cold front will reach the east coast, plunging the entire nation below average. A third arctic cold front may reinforce or further deepen the arctic air the following week. The long-term temperature models continue to indicate that this arctic airmass will persist through at least the middle of the fourth week of January, although there are some indications that the pattern will begin to moderate from west-to-east and south-to-north by the first week of February. Either way, two consecutive 200 BCF/week withdrawals are looking increasingly possible for the last two weeks of January. There have only been 10 such occurrences since January 2000, with the most recent time being the weeks of February 4 and 11, 2011.
For the week of January 19-25, I am projecting a net withdrawal of -249 BCF, up 5 BCF overnight, but a solid 74 BCF greater than the estimated five-year mean withdrawal of -175 BCF. For the week of January 26-February 1, I am projecting a net withdrawal of -213 BCF, up 13 BCF overnight, but 45 BCF greater than the estimated five-year mean withdrawal of -168 BCF. **Note that these 3-4 week projections are at the edge of current forecasting capacity and are subject to large errors.**
For the week ending last Friday, January 4, I am projecting a net withdrawal of -198 BCF, up 4 BCF overnight, but 55 BCF greater than the estimated five-year mean withdrawal of -143 BCF. Like last week, this week’s storage report will once again be complicated by industrial and commercial declines in demand due to shutdowns during the Christmas-New Years holiday period leading to some disconnect between temperature-projected demand and realized demand. I will be refining the estimate once I get a look at some of the pipeline receipts that are released this week and will be issuing a final projection on Tuesday. The EIA issue its weekly report for the week at its regularly scheduled time of Thursday, January 10 at 10:30am.
Natural gas rallied 2.75% on Friday to close at $3.29/MMBTU after the EIA reported that natural gas in storage fell by 135 BCF to 3517 BCF for the week ending December 28, greater than both my projection of 130 BCF and the 5-year mean of 111 BCF. Based on my neutral “Fair Price” model, natural gas is currently trading at a 17 cent premium when the next 3 storage reports are taken into account, but at an 7 cent discount when the next 5 storage reports—including the much colder last two weeks of January—are integrated into the model. This suggests that traders on Friday are really hanging their hats on the upcoming cold blast, but have not fully priced it in. That is, should the forecast of much colder air at the end of January fall through, natural gas has at least an estimated 17 cents to fall, but, if the current forecast holds, natural gas has an estimated 7 cents to rise. Historical analogs based on current 3- and 5-week projected storage are rather uninspiring with 15-day gain:loss ratios of 0.90 and 1.0, and mean changes of +0.91% and +3.31% based on 196 and 40 returns, respectively. Both models are indicating consensus Holds. As stated in Friday’s morning report, I increased my exposure to natural gas in the low $3.20s on Friday at the open and will Hold for now. Trade carefully here and don’t get too carried away by the prospects of colder weather.
So roughly we are talking about a withdrawal of 900 to 950 by end I Jan. putting levels at 2550-2600. If a cold feb comes in we could see another 800-900 withdrawal, leaving storage at 1800-1850. Lower if a deep freezes sets in. That would be very bullish. Of course higher temps in feb would leave levels above 2000 an that would be consistent w the short thesis. Am Iissin something?
I’m looking at a weekly withdrawal of -190 BCF for today’s storage report. This is up 8 BCF from Monday’s estimate, due largely to non-temperature dependent demand losses from holiday-associated shutdowns. However, it is still above the analyst consensus which, based on analysts surveyed by Platts, is between 183 and 187 BCF. My projection may come in a little bit high, but I’m sticking to it. I expect anything over 185 BCF will be grounds for a rally today.
For today, expect a second consecutive single digit storage withdrawal of 8-9 BCF.
The divergence between coal and nat. gas is pretty wide presently. coal seems to have rallied on global sentiment. its likely that nat gas should be poised to rally on this divergence...
Note: Because these projections are based on temperature forecasts, they are subject to change and fluctuate over the course of the week. I provide updated daily projections, live supply/demand stats, fundamental pricing models, and daily discussions similar to the one above at my site powerburnDOTblogspotDOTcom. Thank you for your interest.