Razor's Edge, Part 3 - Structural Shifts Propel U.S. Gas Demand

Lower-48 natural gas demand surged in 2018, managing to offset ballooning production volumes and putting the gas market on the razor’s edge going into this winter. Demand growth occurred across all domestic sectors as well as export markets, but was led by increased demand from power generators. Some of that was weather-related. However, there also was a level-shift up in demand on a per-degree basis, meaning more gas was burned than historically at the same temperatures, signaling a gain in gas market share. What were the drivers, and can we expect this growth pace to continue? Today, we take a closer look at the demand components behind the recent growth trends.

As we discussed recently in our Razor’s Edge Part 1 blog, the Lower-48 gas supply-demand balance in 2018 was especially tight. The combination of the tighter balance and an enormous deficit in storage compared with 2017 and the five-year average had the market unsettled going into the coldest months of this winter. At the time, we looked at the annual average balance for the January-November period in 2018 versus the prior years going back to 2010.

Figure 1 shows the same graph again, this time using the full-year average balance for each year (navy blue bars, left axis), which takes total supply minus total demand (including imports/exports but excluding storage), based on data from RBN’s daily NATGAS Billboard report. A positive balance reflects the surplus supply that is available for storage. A larger surplus on average leads to higher injections during the summer and/or lower withdrawals during the winter (a more bearish price scenario), while a smaller surplus or negative balance has the opposite effect, dampening injections and requiring stronger withdrawals to help balance the market (more bullish). The graph also overlays the November-ending storage inventory estimate for each year (orange line, right axis), as reported by the Energy Information Administration (EIA), which reflects how much gas was available for withdrawal going into the highest-demand winter months.

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