Natural Gas Demand Still Stable

Crude oil drew the headlines this week. Trump’s Wednesday tweet forecasting a 10 Million Barrel per Day (MMB/D) agreed supply reduction (“Could be as high as 15 Million Barrels”) caught markets off guard. The demand collapse is astonishing. The world was consuming around 100 MMB/D of crude oil and liquids before the coronavirus. Estimates are for a 20-25% drop in April. Every producer is feeling the financial pain, which ought to concentrate minds as OPEC holds an emergency video meeting on Monday.

Natural gas demand is both more regional and more stable. Some midstream energy infrastructure companies, such as Williams (WMB) and Cheniere (LNG) are entirely natural gas focused, even though their stock prices move with energy sentiment. Crude moves the S&P Energy ETF (XLE), of which they are components, so their stock prices follow.

U.S. natural gas production is heavily influenced by domestic prices. Although in recent years we’ve become a net exporter, over 90% of output is consumed domestically. Given the collapse in global crude demand, we’re interested in domestic natural gas demand.

The seasons dominate. Winter is the peak period as households and commercial buildings need heat. The power sector uses more in the summer as electricity demand rises for air conditioning. The chart shows the monthly pattern.

The Energy Information Administration (EIA) releases weekly data, which can provide a clue about how demand is being affected by the shut down’s effect on the economy.

We’ve taken the last two weeks, which cover late March to April 1. Since consumption is typically falling this time of year, a sequential weekly drop is normal. Multiplying by 31/7 to get the monthly rate, those two weeks are running at 2,393 Billion Cubic Feet (BCF) and 2,229 BCF respectively. These two figures sit comfortably between last year’s March total of 2,658 BCF and April’s 1,984 BCF.

Looking a little more closely, power demand is stronger than a year ago, continuing a trend of natural gas substituting for coal. And lower crude production will also mean less associated natural gas output from areas like the Permian, which will benefit those drillers focused on pure-play natural gas.

There’s no historical precedent for what we’re experiencing, and it wouldn’t be surprising to see natural gas consumption falling even after adjusting for the seasonals. So far, that doesn’t seem to be happening which supports the encouraging updates provided by natural gas oriented pipeline corporations.

We are invested in WMB and LNG.

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1 reply
  1. Emmett Ryan
    Emmett Ryan says:

    Hi Simon

    FYI, a small company, Cytodyn, has a monoclonal antibody, Leronlimab, which they developed for HIV and should make the final submission for their fist Biological License Application in the next week or two.

    Along the eight year testing path, one of the associated scientists came up with the hypothesis that this compound had several mechanisms of action which would be effective in a number of other diseases which flourish as a result of weaknesses in the human immunological system. Phase 2 trials for Stage 4 breast cancer have shown early, but nevertheless stunning, results and cancer trials have expanded to test 22 forms of solid tumor cancers.

    The scientist also hypothesized it would be useful against Covid (and Acute Respiratory Distress Syndrome in General) and the FDA granted an Emergency IND. Ten seriously ill patients at Montefiore Hospital were dosed last week. Data from the first eight patients, all of whom were on a path to imminent death, were astonishing. All patients had immunological markers return to normal. Those on ventilators came off and, reportedly, one walked out of the hospital. Based on these results, a Phase 2 trial for mild to moderately ill patients and Phase 2b/3 trial for severely ill patients have been launched. It is expected the trials will fully enroll almost immediately (enrollment began Thursday).

    The severely ill patient trial has an endpoint of one week survival. Based on the results from the emergency IND patients, the chance of success is a statistical near certainty. The scientists are highly optimist about the prospects for treating less ill patients. This trial should readout at the end of this week or maybe next week.

    This compound has been administered to over 800 patients over log periods of time with zero Serious Adverse Events, so no time consuming safety trial will be needed.

    With this in mind, I think this pandemic and the economic restrictions addressing will be over shortly. Two weeks….four weeks maximum. Not in your bailiwick, but I think this compound will have a disruptive effective on the pharmaceutical industry along the lines of penicillin. Sounds crazy when I say it but that doesn’t mean it is crazy.

    I’ve gotten a lot of great information from you. Thought I would share this.




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