US gas prices could rise on higher power sector demand
Knoxville – The recapture of power generation demand from coal and expectations for an early start to the US heating season could prompt a pre-winter rally for natural gas prices by October, BNP Paribas said Friday.
Much of the year-to-date increase in gas prices was erased as summer temperatures trended normal to below-normal in key US consuming regions this year, leading to prices below $3.50/MMBtu. But the lower prices have again made gas attractive to utility buyers, BNPP analyst Teri Viswanath said.
“Increasingly favourable fuel economics will encourage heavier utilisation of natural gas combined-cycle plants in key regions of the country, ultimately leading electric power demand higher before year-end,” she said. That improvement “will likely occur just as the market begins to look ahead to rising heating demand,” she added.
Viswanath predicts coal-to-gas switching will reverse by November, and that demand from the power generation sector will rise by nearly 500,000 Mcf/d in 2014. Those gains will likely first happen in areas that saw the least switching to coal over the long term, such as the west, northeast, and southeast.
In addition, long-range forecasts indicate the possibility of a more normal start to winter in the fourth quarter, compared with a very warm start to the last two winters, she said.
As a result, Viswanath predicts gas prices will begin to break above $3.25/MMBtu to $3.50/MMBtu range in the second half of September.
But she cautioned that between now and then, “we see short-term price weakness emerging as waning air-conditioning demand leads to stout weekly injections into gas storage.”
The analyst reiterated her view that 2013 power demand losses have been an “outlier,” citing weak load, fuel-switching and a wave of new wind generation.
“We note that the massive buildout of natural gas-fired generation in the past decade coupled with the recent availability of low-cost gas has nearly guaranteed an uninterrupted string of annual utility demand gains since 1998,” Viswanath wrote.
Stephanie Seay, stephanie.seay@platts.com –Edited by Jeff Barber, jeff.barber@platts.com
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