MTECHTIPS

MTECHTIPS:-Nuclear power makes way for cheap Natural Gas; upside risk to price outlook

Last week recorded the first announced US nuclear power plant retirement as a result of low power prices and low natural gas prices. Dominion Resources plans to close its 556-MW Kewaunee plant in Wisconsin in Q2 13.Although the final decision cannot be made until MISO conducts a grid reliability study, the incremental shutdown of the nuclear plant represents an incremental demand growth of 120 MMcf/d for natural gas.“We recognise that more-than-expected coal and nuclear plant retirements in 2013 due to depressed power prices represent an upside risk to our natural gas price outlook. At the moment, however, our baseline outlook remains that most of the coal plant retirements are not due until right before the compliance date of the HAPs-MACT rule on 1 January 2015.” Barclays said in a report.Gas prices suffered further correction for most of last week and gave back much of the gains made since the end of September. However, prices remain elevated, above the levels Barclays believes are supported by market fundamentals.On one hand, natural gas power burn is not as high as during the previous shoulder season (March-May), when gas power burn was almost 6 Bcf/d higher y/y, on average.Clearly, the rally in natural gas prices has weighed on the price-elastic portion of power demand.