# How The Natural Gas Storage Glut Has Been Cut This Summer

The National Oceanic and Atmospheric Administration (NOAA) reports cooling degree day (CDD) data for every seven-day period by state. From that data, they construct a populated-weighted national total.

CDDs are the difference between the daily temperature mean (high temperature plus low temperature divided by two) and 65°F. If the temperature mean is above 65°F, we subtract 65 from the mean.

Example: The high temperature for a particular day was 90°F and the low temperature was 66°F. The temperature mean for that day was:

(90°F + 66°F)/2 = 78°F

Because the result is above 65°F:

78°F - 65°F = 13 cooling degree days.

Cooling degree days affects natural gas use because it is a feedstock to electric utilities. Electricity powers air conditioners.

Over time, natural gas has been replacing coal as a feedstock to utilities. It follows that to understand how summer temperatures affect natural gas consumption; it is important to know where utilities are burning natural gas and how much.

I take NOAA’s state-by-state CDD data and weight each state by its relative natural gas use at electric utilities. In that way, I get a more accurate picture of CDDs to gauge natural gas use.

To prepare quantitative projections of future consumption, the first step is having a model that relates degree days to demand. In my model, I use three factors: heating degree days, cooling degree days, and GDP.

With just these three factors, I have a 97% multiple regression fit since 2012. This means these factors, each of which is highly statistically significant (as indicated by the T-statistics), explains 97% of the monthly variation in demand (see graph below).

## Conclusion

The table below shows the predicted v. actual storage levels for each week this summer. It also shows the year-over-year change. Based on actual CDDs for last week and predicted CDDs for this week, the storage glut will have been reduced from 27% in the week ending June 3rd to just 7% for the week ending August 26th. This is why natural gas futures prices have found support this summer.

Check back to see my next post!

Best,
Robert Boslego
INO.com Contributor - Energies

Disclosure: This contributor does not own any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

## One thought on “How The Natural Gas Storage Glut Has Been Cut This Summer”

1. Carl M Welch says:

How much natural gas have you produced? This is the problem. Analysts can work up a good model, but the producers have the best understanding of what's happening. One example. In the Hugoton field, maybe still the largest onshore gas field in the US, producers are shutting in their wells because the net at the well head is about .60 per mcf. OneOk, the gatherer/purchaser is charging about \$300 per month to keep taking gas from low volume wells. The futures price, \$2.88,
is a fairy tale. Also, if you drill a horizontal well that produces at a high rate are you going to sell your flush production for very little money? Go ahead. I won't.