Morning Thoughts – Oldinvestor

June 4, 2020

I mentioned briefly on Tuesday that low NG prices can be a strong incentive electric power plants to use natgas as their fuel of choice. For those unfamiliar with this, power burn is the term of the category of natgas usage for electric power generation. HFIR highlighted power burn in a free article yesterday afternoon, and predicting new all time highs for power burn this year.

https://seekingalpha.com/article/4351822-natural-gas-power-burn-hits-new-record-high-for-this-time-of-year

Daily Power burn year over year from 2017 to June 3, 2020 at HFI Research

In the article, HFIR makes bold prediction; “Power burn is going to hit a new all-time high this year with the peak being ~3 Bcf/d higher than the previous high (also dependent on how warm the weather gets).”

Lets see what we can learn about this using CDD (cooling degree days). Investopia was the first link I saw when googling Cooling Degree day.

https://www.investopedia.com/terms/c/colddegreeday.asp#:~:text=What%20Does%20Cooling%20Degree%20Day,Fahrenheit%20(18o%20Celsius).

Investopia’s definition of CDD: “A cooling degree day (CDD) is a measurement designed to quantify the demand for energy needed to cool buildings. It is the number of degrees that a day’s average temperature is above 65o Fahrenheit (18Celsius).”

So there is some direct comparison between this Cooling Degree Day number and power burn. CDD the National Weather Service has power weighted CDDs; this is based upon expected heat in particular areas of the US and the amount of energy that will be used in those areas based on population. So we can reverse engineer the numbers for history to get an expected number for the future.

I’m going to borrow an image from RonHenergy.com

Ron H is doing already doing the CDD vs Power Burn comparison for each week, and has all of 2018/2019 already plotted for us! I’m going to show from week 18 (end of april) to week 30 (end of July)

Weekly comparison of CDD to Power burn from week 18 to week 30 of 2018/2019 on RonHenergy.com

So we see what kind of Power burn growth there has been with the same number of CDDs from 2018 to 2019. Remember CDDs are just how hot it is in the US on a population basis. like if it is 90 degree across Arkansas of a population of 3 million people, vs Florida with a population of over 21 million people….. The CDD number is weight to be higher if it’s 90 degrees in Florida over just Arkansas because Florida has more people and they will use more power, turning on more air conditioning to stay cool. All this has been figured out. the numbers used by National Weather Service are very small whole numbers, but it will get us close enough for this comparison.

On with the data. I won’t worry about much math here since it has been determined for me how much power consumption equates to the amount of CDDs. I am running out of time here…. I’m not going to go back and re-write anything, but I want/need to expand a little on the dataset to have a more accurate comparison between 2018 and 2019.

Weekly comparison of CDD to Power burn from week 20 to week 40 of 2018/2019 on RonHenergy.com

This chart includes a little more of Summer. I’m going to use 11 CDD. Referring to 2018, at 11CDD the US used roughly 37Bcf/d. In 2019 at 11 CDD the US used roughly 39Bcf/d. This would tell us there was growth in power burn year over year from 2018 to 2019. There were more natgas powered electric generating plants built so of course there should be more natgas fuel used to generate electricity. This is important to us because we learn and can expect this growth in summer natgas demand and use that in EOS expectations for Natgas storage. We can also use weather predictions to estimate changes in the near term future of power burn demand.

Back to 2020, and HFIR’s prediction to be 3Bcf of a power burn draw over previous highs. Weather permitted of course.

Daily CDD comparison at RonHenergy.com

This is getting kinda hairy. I’m guessing Ron did not put Power burn vs CDDs only into his charts for 2020. So we have to compare CDDs, then compare Power burn separately. This is going to be very rough. To be more accurate, one would need to get the daily numbers for Power burn and for CDDs. I don’t have that kind of time. But by the chart, CDDs look very similar year over year. If you follow the link to the actual chart, you can also get a better idea of the details of these charts.

It’s too hard to tell in the short time I’ve spent trying to prove or dispel what HFIR has predicted about Power burn for the summer of 2020. I would say they are accurate in that Power burn will be stronger vs CDDs in 2020 vs the history of power burn. So there is still growth and/or a shift to using Natgas vs using Coal as fuel of choice for electric power generation. This is certainly something worth watching, and disproves any rumors I heard that power burn would be weak in 2020. I never really bought that one nor do I understand why it would be the case with prices this low anyway.

My position

UNG – 60% in with an average of $11.73 – limit order to reduce back to 40% in at $11.73

I’m sticking with my reduction of UNG at my break even price of $11.73. 40% of funds dedicated to UNG is plenty to make a fair profit and still protect my account. Do your best to protect your account and gains will trickle in. The report is today. I will just have the one order in to reduce UNG. Not planning to buy any dips. Good Luck

Oldinvestor

As a side note, I keep hearing of a very scary scenario in Europe where natgas prices go negative and cause more problems for LNG. I guess this is possible, I don’t have any data on this…. But…. If this scenario plays out, it will be short lived and will help get things turned around sooner. Bring it on. This market needs to make better examples of the companies and banks that supported such wild spending on ridiculous growth expectations of shale E&Ps.

Chesapeake is going under. I am have no opinion, but it is inevitable.

https://www.ft.com/content/bf230420-a570-4fcb-a2cf-3c38b5429b6f