Last Updated : 21 November 2012 at 11:45 IST
Nuclear power outages boost US Natural Gas demand: Barclays
Source :Barclays research
“We believe the bullish sentiments priced into the curve are overly optimistic. At the moment, demand is strongly supported by an exceptionally large number of nuclear outages. With no signs of meaningful production declines, we believe that coal displacement would need to remain at healthy levels during the winter to balance supply and demand.”
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A drastic drop in nuclear generation is boosting natural gas demand this month in US. While the majority of the outages are planned, a significant number of nuclear units are down unexpectedly, some with unknown restart dates, Barcalys said in a report.
Nuclear plants regularly undergo maintenance in the fall, but this November’s low in generation is setting a record, surpassed only by the heavy turnaround season in spring 2011.
Daily reports by the Nuclear Regulatory Commission put nuclear plants running at an average of 74,769 MW so far this month, a full 12,500 MW, or 14%, lower than last year. If entirely replaced by base load natural gas generation, this would yield a 2.2 Bcf/d boost to natural gas demand versus 2011.
For reference, the country’s 106 nuclear reactors have a combined nameplate generation capacity of 104,000 MW.
The rest of this month should see a number of the plants return to operation, and the outages should be halved in December. Yet nuclear generation in December 2012 and January 2013 is poised to remain below last year’s levels.
If fully replaced by gas-fired generation, the expected y/y deficit in nuclear output would translate into an incremental gas demand of 675 mmcf/d and 340 mmcf/d, respectively.
In contrast, the upcoming spring maintenance season should be lighter than the one in 2012. Given current announcements, our analysis suggests that nuclear generation in March, April and May next year should run 6,500 MW, 4,700 MW, and 9,300 MW, respectively, higher than in 2012. If entirely replaced with gas-fired generation, this would translate into lower gas burn in March, April and May 2013, of 1.2 Bcf/d, 0.8 Bcf/d, and 1.7 Bcf/d, respectively, than in 2012.
Note that this estimate does not include the much publicized Kewaunee reactor (566 MW) in Wisconsin, which is due to shut down permanently by the end of Q2 next year.
The reactor is put out of service due to chronically low power prices in the region. Of the 35,750 MW scheduled for turnaround in the spring of next year, about 13,700 MW will affect the northeast (PJM and NPCC), 7,700 MW will affect the west (WECC), and 6,000 MW will come off line in the southeast (SERC).
Natural gas prices rallied last week, along with the first withdrawal of the season. The back of the curve moderated, while the front continues to flirt with $3.75-3.85.
The forward curve is supported by expectation for a colder-than-normal December. As well, some market participants are expecting production declines to hit in 2013.
“We believe the bullish sentiments priced into the curve are overly optimistic. At the moment, demand is strongly supported by an exceptionally large number of nuclear outages. With no signs of meaningful production declines, we believe that coal displacement would need to remain at healthy levels during the winter to balance supply and demand.” the Bank concluded.
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