Seasonal refueling at the nation's nuclear power plants will help the natural gas industry next month, while a capacity utilization plateau that the nuclear industry appears to be approaching could spell out a bullish future for natural gas, energy analysts with Raymond James & Associates Inc. said last week.
The drop in nuclear capacity utilization that accompanies the industry's twice-yearly refueling and maintenance schedule could be especially dramatic this October because it will also mark the low point of an 18-month cycle of nuclear utilization, analysts J. Marshall Adkins, Pavel Molchanov and Christopher Butschek wrote in Raymond James' latest Stat of the Week.
Nuclear plants have a capacity utilization rate of almost 90%, the highest in the power generation arena, the analysts said. When nuclear plants are temporarily shut down, gas peaking units are most likely to fill the production gap. Nuclear utilization should be down nearly 1 Bcfe/day year-over-year during October, resulting in a temporary spike in natural gas demand of nearly 1 Bcf/d, they said. But any modest spike in gas demand in October will be reversed in November, when nuclear utilization should rebound to a higher year-over-year level.
Looking to the longer term, the analysts said nuclear plants can be run at progressively higher utilization rates as the industry matures, but they may be approaching a plateau that will benefit natural gas. Nuclear utilization rates, which were 55-60% during the 1980s, moved up robustly in the 1990s and have averaged 90% since 2000.
"That's all well and good, of course, but it's becoming increasingly clear that the industry is approaching peak utilization," the analysts said. "Quite simply, rates meaningfully above 90% are not practically realistic."
Expecting more and more output from the same nuclear capacity "will no longer be doable, at least not to the same extent," and there may come a time when the nation's aging nuclear infrastructure will see declining utilization rates, they said.
As far as gas demand is concerned, the upcoming nuclear refueling and the possibility of falling nuclear utilization rates will be "bullish for October and bullish for gas in the very long run," the Raymond James analysts said.
"Nuclear is likely maxed out for at least the next five to 10 years. Environmental pressures are likely to limit conventional coal generation expansion and clean coal (based on carbon capture and sequestration) is a long way off from becoming commercially viable. Large hydro plants are no longer built domestically and wind and solar will, of course, continue to grow (from a small base), but their output is inherently intermittent and thus unpredictable. All this leads us to one conclusion: Over the long haul, the share of gas-fired generation will almost certainly increase from its 2008 level of 21.3%."
Growing domestic consumption of gas for power generation would be one way to alleviate what they believe will be a structural imbalance between North American gas supply and demand over the intermediate term, the analysts said.
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