Gas prices will rebound next year from nuclear outages, analysts say

By the OGJ Online Staff

HOUSTON, Aug. 6 -- Natural gas prices may rebound next year thanks to decreased nuclear power production, Raymond James & Associates said.

Nuclear power is headed for a "cliff" next spring as power plants go off line for planned maintenance outages, analysts said. Demand for natural gas will increase on the strength of reduced nuclear power generation. Lower nuclear generation should boost gas demand 1-1.5 bcfd by May 2002 to serve gas-fired generation, said Fred Schultz, analyst with Raymond James in Houston.

He estimated nuclear power generation replaced 1.5-2.5 bcfd of gas demand in gas-fired electric generation this summer. That offset is expected to continue into the fall when gas prices will finally bottom out, Schultz predicted. By next spring, gas demand and prices should improve dramatically, Schultz said, creating an "astounding" 3.5 bcfd swing in gas demand.

The nuclear power fleet has been run "flat out" for the last 2 years. Utilization for the fleet is running on average at an historic high of 97%. In 2002, repairs and refueling of the fleet should reduce utilization to 91%, Schultz estimated.

Schultz said he used conservative projections and did not factor in any unplanned or forced outages of the nuclear plants. The analysis is based solely on the scheduled refueling and outages that will begin in May of 2002 and continue into the summer.

Each additional unscheduled or forced outage furthers Raymond James's gas rebound story, as gas-fired electric generation would be the logical band-aid to bridge the gap of lost electric capacity, he said.

Schultz predicts almost a 17% month-over-month switch from nuclear power to gas fired generation from April to May of 2002.

"Next year is shaping up to be a far more bullish year for gas," he said.