Last Updated : 17 November 2012 at 11:45 IST
What will offset the gains in US Natural Gas demand this winter
Source :Barclays research
Natural gas prices have risen drastically a few days before the storage report on Thursday as the market anticipated the first withdrawal following the injection season. The storage change indeed turned out to be a withdrawal, which was 18 Bcf, 4 Bcf lower than the expected 22 Bcf.
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Natural gas demand is expected to grow in the winter months after further growth in heating demand even as Barclays expects unrelenting supply as well as lower power generation to offset that gain somewhat.
Natural gas prices have risen drastically a few days before the storage report on Thursday as the market anticipated the first withdrawal following the injection season. The storage change indeed turned out to be a withdrawal, which was 18 Bcf, 4 Bcf lower than the expected 22 Bcf.
The withdrawal was entirely concentrated in the East, where incremental heating demand and power demand from nuclear outages offset the demand destruction caused by Hurricane Sandy.
The West added 3 Bcf, while the Producing Region injected 2 Bcf. Indeed, the withdrawal occurred as power burn was supported by lower y/y nuclear generation and higher y/y heating degree days, despite the disappearance of y/y coal displacement growth.
In November, nuclear outages are 12 GW higher than last year’s level, on average. Going forward, we expect the y/y nuclear generation shortfall to fall to about 2.6GW in December. Assuming only gas generation is called on to plug in the shortfall, the monthly average of 12 GW would represent as high as 2 Bcf/d of incremental demand for natural gas.
On the other hand, natural gas production has crept up over October and November to record high levels, owing partially to some latent supply getting debottlenecked by pipelines that have come on stream.
Lower-48 dry production so far has averaged about 1 Bcf/d higher compared to September, according to pipeline data, this is relatively in line with Barclays' expectation that about 1.8 Bcf/d of latent supply was due to come out of the Marcellus and Eagle Ford in Q4 due to debottlenecking alone.
UK natural gas remains supported with the front month NBP prices up above 67 p/therm level. The support largely came from a move back into cold weather. With prices having to incentivise gas withdrawals from storage, either in the UK or on the continent. With an early cold spell, we expect prices to remain around current levels for the remainder of the year.
