The US Department of Energy's Energy Information Administration may be underestimating natural gas demand with much of the US South and Northeast enveloped in yet another round of cold weather that boosted gas and electricity demand in January through early February, said Adam Sieminski, chief energy economist, Deutsche Bank, Washington, DC.
The March natural gas contract climbed 10.4¢ to $5.40/MMbtu Feb. 11 on the New York Mercantile Exchange, "the largest 1-day gain since the beginning of the month," on "a drop in jobless claims, indicating industrial demand, which accounts for 29% of US [gas] consumption, is likely improving, and cold temperatures across the US likely resulting in higher residential demand," said analysts at Pritchard Capital Partners LLC in New Orleans.
On the US spot market that same day, gas at Henry Hub, La., gained 3¢ to $5.51/MMbtu. Gas prices continued rising to $5.47/MMbtu in the Feb. 12 session on NYMEX and to $5.55/MMbtu at Henry Hub as continued snowfall buried parts of the Northeastern US and the Mid-Atlantic states. Meanwhile, EIA reported January heating degree-days in the South Census Region—where 60% of households use electricity as the primary space heating fuel—were 13% higher in January than a year ago. Consequently, residential electricity sales in the South region also increased by about 12% to an average of 2,250 Gw-hr/day, "and a good part of this electricity was generated with natural gas," Sieminski said.
He noted that EIA estimated gas consumption by the entire US electric power sector jumped by more than 8% in January from the administration's preliminary estimate during that month. EIA's short-term energy outlook published in the week ended Feb. 12 estimated a new record for gas consumption by the electric power sector for January. "However, the EIA is reluctant to give up on its view that an increase in coal-fired generation capacity and higher natural gas prices through the remainder of the year should reduce the share of natural gas-fired generation in the baseload power mix in 2010." Sieminski said.
Data indicate a minispike in electric utility gas use during January before dropping off in February and March. Similarly, residential use in the EIA forecast is shown lower in this year's first quarter than the similar period in 2009.
"Could the EIA be underestimating gas demand?" Sieminski asked. "News reports this week show a severe and very unusual winter snowstorm across the South from Dallas, Tex., to Atlanta, Ga. This appears to be the same type of weather pattern that caused the unusual rise in electric utility gas use in January. Other parts of the US are also getting hit hard with cold, windy weather that boosts gas use in home heating. March might also be exceptionally cold across a large section of the central US." Analysts at Pritchard Capital Partners said, "Land drilling activity both in the US and abroad continues to move higher. The outlook for natural gas over the next 12 months, specifically in the US, is highly debatable."
Colder March forecast
Deutsche Bank's meteorologist Corey Lefkof is calling for unusually cold temperatures across much of the central US in March. His forecast is for another frigid month in the US, with data suggesting a 15-20% colder March compared with 10-year average temperatures. He said the "major meteorological themes from the winter so far" should extend into March as "the robust negative Arctic Oscillation and negative North Atlantic Oscillation signatures hold into mid-March" along with "a decaying El Nino in the Pacific that has traditionally lead to colder than normal US conditions as the Pacific jet calms down and allows more Canadian and polar air masses to influence the pattern."
EIA reported the withdrawal of 191 bcf of natural gas from US underground storage in the week ended Feb. 5. That reduced working gas in storage to 2.2 tcf, up by 172 bcf from year-ago levels and 114 bcf above the 5-year average. "After last week's relatively colder weather, the blizzard that blanketed the Mid-Atlantic this week, and forecasts for colder weather in late February, we could see significant withdrawals from [gas] storage over the next couple of week," said analysts in the Houston office of Raymond James & Associates Inc.
On the other hand, Olivier Jakob at Petromatrix, Zug, Switzerland, said, "The transportation fuel demand destruction that is associated with the record snowfall in the US East Coast should turn into greater-than-expected stock builds of gasoline and diesel, which given the limited storage capacity available pressures the cracks…."
(Online Feb. 15, 2010; author's e-mail: [email protected])
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