Last week recorded the first announced US nuclear power plant
retirement as a result of low power prices and low natural gas prices.
Dominion Resources plans to close its 556-MW Kewaunee plant in Wisconsin
in Q2 13.
Although the final decision cannot be made until MISO conducts a grid reliability study, the incremental shutdown of the nuclear plant represents an incremental demand growth of 120 MMcf/d for natural gas.
“We recognise that more-than-expected coal and nuclear plant retirements in 2013 due to depressed power prices represent an upside risk to our natural gas price outlook. At the moment, however, our baseline outlook remains that most of the coal plant retirements are not due until right before the compliance date of the HAPs-MACT rule on 1 January 2015.” Barclays said in a report.
Gas prices suffered further correction for most of last week and gave back much of the gains made since the end of September. However, prices remain elevated, above the levels Barclays believes are supported by market fundamentals.
On one hand, natural gas power burn is not as high as during the previous shoulder season (March-May), when gas power burn was almost 6 Bcf/d higher y/y, on average.
Clearly, the rally in natural gas prices has weighed on the price-elastic portion of power demand.
Furthermore, the looming pipeline and infrastructure additions in the Marcellus in November that could unleash a good portion of latent supply into the market (our base case: 1.5 Bcf/d in Q4) are likely to keep natural gas production from falling any time soon despite the lowest gas-directed rig count in 16 years.
Also, as a result of the recent rally in the back of the curve (calendars 2013 and 2014), there is already increased drilling activity in the dry portion of the Marcellus, which has experienced rig attrition while growing production. A continuing rally above $4 on the forward curve could encourage further drilling and increase natural gas production.
For the week ending on 19 October, natural gas storage injected 67 Bcf, the same as consensus but 28 Bcf below the prior-year level, mainly as a result of stronger y/y natural gas power burn and higher y/y heating demand.
At the same time, y/y production growth has declined significantly. Although the price elastic growth in power burn has fallen compared with earlier in the year, natural gas power burn has been supported by natural gas making up for the y/y losses in nuclear generation and incremental coal plant retirements that could come back anytime if prices rise above $4/MMBtu.
Despite the further reduction of the storage overhang, inventory is well on its way to achieve another record high, a point that the market seems to ignore altogether, as most market participants are focused on the winter season.
Although the final decision cannot be made until MISO conducts a grid reliability study, the incremental shutdown of the nuclear plant represents an incremental demand growth of 120 MMcf/d for natural gas.
“We recognise that more-than-expected coal and nuclear plant retirements in 2013 due to depressed power prices represent an upside risk to our natural gas price outlook. At the moment, however, our baseline outlook remains that most of the coal plant retirements are not due until right before the compliance date of the HAPs-MACT rule on 1 January 2015.” Barclays said in a report.
Gas prices suffered further correction for most of last week and gave back much of the gains made since the end of September. However, prices remain elevated, above the levels Barclays believes are supported by market fundamentals.
On one hand, natural gas power burn is not as high as during the previous shoulder season (March-May), when gas power burn was almost 6 Bcf/d higher y/y, on average.
Clearly, the rally in natural gas prices has weighed on the price-elastic portion of power demand.
Furthermore, the looming pipeline and infrastructure additions in the Marcellus in November that could unleash a good portion of latent supply into the market (our base case: 1.5 Bcf/d in Q4) are likely to keep natural gas production from falling any time soon despite the lowest gas-directed rig count in 16 years.
Also, as a result of the recent rally in the back of the curve (calendars 2013 and 2014), there is already increased drilling activity in the dry portion of the Marcellus, which has experienced rig attrition while growing production. A continuing rally above $4 on the forward curve could encourage further drilling and increase natural gas production.
For the week ending on 19 October, natural gas storage injected 67 Bcf, the same as consensus but 28 Bcf below the prior-year level, mainly as a result of stronger y/y natural gas power burn and higher y/y heating demand.
At the same time, y/y production growth has declined significantly. Although the price elastic growth in power burn has fallen compared with earlier in the year, natural gas power burn has been supported by natural gas making up for the y/y losses in nuclear generation and incremental coal plant retirements that could come back anytime if prices rise above $4/MMBtu.
Despite the further reduction of the storage overhang, inventory is well on its way to achieve another record high, a point that the market seems to ignore altogether, as most market participants are focused on the winter season.
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