Analysis: Coal retirements could boost natural gas prices
- Analysts believe a surge in coal plant retirements will provide support for natural gas prices in the long term, while a colder winter will create scarcity pricing sooner, SNL Energy reports.
- Guggenheim Securities LLC is predicting 33 GW of coal retirements beginning 2017, double what has been announced, SNL Energy reports.
- Gas storage facilities have been refilled at a slower rate than usual, according to Reuters, sending gas for March delivery up more than 10% since last month.
Natural gas prices have been low for years now—averaging less than $2/MMBtu at Henry Hub last winter—but a growing number of analysts believe that is about to change.
A wave of coal retirements could add up to 1 billion cubic feet (Bcf) of demand in each of the next two years, according to Guggenheim analyst Subash Chandra, who believes gas will average more than $3/MMBtu next year. An anticipated cold winter has drawn warnings from the Natural Gas Supply Association (NGSA) that prices may spike.
"Because of colder weather and growth in demand for natural gas, NGSA anticipates upward pressure on prices compared to last winter,” Bill Green, the group's chairman, said in a statement.
NGSA's winter outlook predicts combined demand from the residential, commercial, industrial, electric and exports sectors will result in record demand of 92 Bcf/d. Most of the increased demand will be due to a winter that is forecasted to be 12% colder than last year, adding about 4 Bcf/d in the residential and commercial sectors.
The electric generation sector will actually use less gas this winter, NGSA said, in part due to possible price spikes. A 3.3 Bcf/d drop in demand is expected to result from a lack of fuel switching, a phenomenon seen last winter when prices dropped below about $2.50/MMBtu gas was able to displace some coal generation, which is usually seen in the shoulder months. According to NGSA's Green, temporary fuel-switching will likely occur but at half the volumes that took place last year.
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