Tuesday, 9 October 2012

MTECHTIPS

MTECHTIPS:-US Natural Gas upside to be capped at $4.30/MMBtu on Coal-switch prospects: BofAML

Any upside to US natural gas prices will likely be capped by coal. If natural gas prices run up too quickly, the relative advantage of gas over coal disappears rapidly and power generators will switch back into coal, Bank of America Merrill Lynch said in a report.“Case in point, if coal-to-gas switching were to decline to 2 bcf/d, we estimate end of October inventories would rise to 4.2 tcf, reigniting containment concerns.” the Bank said. “As some coal-to-gas switching will still be necessary in order to balance the market, we see natural gas prices capped at $4.30/MMBtu unless we get outright production declines.” the Bank added.As production growth slows down and prices move higher, Bank of America Merril Lynch expects coal-to-natural gas switching to fall by 1.8 bcf/d. With total gas demand contracting by 0.6 bcf/d, inventories will likely stay elevated next year.

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