Barclays expects natural gas storage of US to end March at about 1.9 Tcf assuming normal weather in February and March. This is slightly lower than previous expectations as January weather was slightly colder than-normal, while production freeze-offs lasted longer than previously expected. Since February weather this year is largely expected to be near normal, this should not lead storage too far from  estimated end-of-season level.
Barclays have factored in several expectations in this storage estimate. For one, production should return to November levels as winter weather subsides in the spring (March to April). Furthermore, the incremental y/y loss in natural gas power bur due to nuclear generation growth should be partially offset by the expectations of weaker hydro generation on a y/y basis. Barclays believe believe weather remains the largest risk to near-term prices.
Gas prices tumbled after the market received a much-smaller-than-expected storage withdrawal on Thursday. For the week in reference, storage withdrew 118 Bcf, 10 Bcf less than the expected withdrawal of 128 Bcf, says Barclays report.
This is the second consecutive week that market participants have expected a tighter market signal from storage changes than the EIA’s report has indicated. The storage deficit continues to narrow as colder weather than last year at this time has overwhelmed other demand and supply factors in the market. Gasweighted HDDs were 19% colder than the same week last year; this is partially offset by a large drop in coal displacement, while the y/y nuclear generation shortfall has also disappeared. Production freeze-offs have had a significant recovery, but lower-48 supply remains lower on a y/y basis.
Us commissioning new natural gas-fired power plants
The US is building new gas-fired power plants, despite challenging economics and anaemic power load growth. The majority of the new gas-fired plants under construction and expected to start operation in 2013 are in the Western Electricity Coordinating Council, which stretches over a large territory covering 14 US states and extending into parts of Canada and Mexico. Natural gas-fired generation is on the margin for most of the WECC, and the new gas units will likely be displacing older and less efficient gas plants.
In fact, as new gas plants will be increasing the efficiency of the power stack in the West, they could result in slightly lower natural gas consumption at equivalent levels of power generation. In the other two regions expecting to see new gas builds, SERC and PJM, the new plants are likely to be displacing both coal and gas-fired generation, as the two fuels compete on the margin in these two areas.
Gas capacity growth is very small in 2013 for those two markets. For 2014, although the capacity builds for gas look large in PJM and SERC, around half of the announced capacity has not entered construction, and it is unlikely that all announced plants come to fruition. As coal plants are increasingly on the margin in the PJM and SERC power markets, those new gas-fired plants that do come online will likely take some market share away from coal in 2014.
Barclays believe the impact of new gas builds on incremental gas burn in 2014 is unlikely to be significant in the Eastern power markets. 2015, on the other hand, could see a large addition of new gas-fired units, in particular in PJM where announced gas-fired plants are very sizable. In this case, many of the new units will serve to replace coal-fired retirements and cause the power stack to be gassier at the expense of coal in the Eastern power markets. This incremental demand, however, is largely accounted for in our estimates for increased gas-burn as a result of coal plant retirements
Source: Barclays