Last Updated : 20 July 2012 at 16:10 IST
Power utilities demand to drive Natural Gas higher
Source :Commodity Online
Natural gas market is going to remain well-supported in the coming months due to an expected increase in consumption in the power sector as a replacement of coal and in residential use due to the ongoing hot weather in US
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Natural gas is gaining more attention these days across the world, recently it rose around 30% reaching to the level of $3/mmbtu. From past couple of months, prices were suppressed due to the higher supply and less demand in the market. The warmest winter on record reduced the demand of natural gas for heating in the US. However, then also US drillers kept on drilling which eventually resulted in the supply glut. On the fears that the huge inventory built-up and fears that the nation’s storage would run out of room, Natural gas prices hit a ten-year low early in April’12.
However, on the other hand total rig counts of natural gas have fallen drastically, the count reached to a low of 522 which is below than the five years average of 961. Also there are signs of improving demand of natural gas in US due to much higher temperatures than expected. Consumption has increased in electric power sector and still continuing their upward trend. Major consuming regions in the eastern United States saw natural gas consumed for electric power generation significantly exceed the average of the previous five years.
Natural gas consumption is expected to grow in US over the next years which would eventually double its energy market share from 20%to 40%. Natural gas is killing coal market now as it is cheap and abundant. Natural gas can produce electricity equalling to coal that too at lower cost; it would automatically shift the demand of coal to natural gas. However, four years ago electricity generated by gas was twice as expensive as coal. Today, gas is less than half the price of coal, it is expected that it would reduce the usage of coal more than 50% in the near future.
Natural gas market is going to remain well-supported in the coming months due to an expected increase in consumption in the power sector as a replacement of coal and in residential use due to the ongoing hot weather in US. Outlook on Natural gas remains bullish and recommend investors to go long in dips. We expect it to touch $3.7-4/mmbtu in the international market and Rs. 188-192/mmbtu in the domestic market in the near term.
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