While coal garners much of the attention when it comes to the displacement of natural gas-fired power generation, nuclear power generation has been on the upswing this year and is expected to continue to make gains throughout the rest of 2013 and in the first half of 2014, according to a recent research note from Barclays Capital’s Shiyang Wang.

“Against the backdrop of a heavy maintenance season and large unplanned outages caused by Hurricane Sandy last fall, nuclear generation has been running almost 12 gigawatts (GW) above last year’s level in November so far,” the report said. It is expected that nuclear generation will gain 14 GW throughout the rest of this month and another 7 GW in December. It is expected that nuclear generation will add another 2.8 GW and 4.9 GW on a year-on-year basis in the first and second quarters of 2014, respectively.

“If natural gas were the only fuel displaced, gas demand would lose on average 2.5 billion cubic feet (Bcf) per day in November and 1.25 Bcf per day in December compared with last year. In reality, however, both gas-fired and coal-fired generation would likely be curtailed as a result of higher nuclear output,” Wang said, noting that nuclear plant outages are much smaller than last year because plants are on 18- to 24-month maintenance cycles.

Despite these improvements, the North American nuclear generation industry isn’t so much gaining strength as it is returning to form, according to En*Vantage. “Nuclear generation appears to have bottomed [out] and is on its way up from the seasonal turnarounds. The turnaround season mirrors the fall of 2010 and 2011 levels as opposed to last year when we saw a much deeper downturn in generation. Current operating levels amount to an equivalent of approximately 14 Bcf per week equivalency if all of the change was reflected in gas generation,” the company said.

This displacement hasn’t had much of an impact on gas prices, since they made gains once again this week, which indicates a strong market even with the large storage levels. Gas prices rose 5% at Conway to $3.48 per million Btu (MMBtu) and 6% at Mont Belvieu to $3.51 per MMBtu as there is near parity throughout the country at the various hubs due to strong heating demand caused by lower-than-normal temperatures.

Increased heating demand also had a positive impact on NGL prices as propane posted the largest gains at both hubs this week, improving 3% to $1.20 per gallon at Conway and 1% to $1.19 per gallon at Mont Belvieu. The Conway price was the largest at the hub since it was $1.26 per gallon the week of December 7, 2011. The Mont Belvieu price was the largest it has been since the week of April 18, 2012. This was the second consecutive week that the Midcontinent price outpaced its Gulf Coast counterpart, primarily due to increased demand from farmers to dry their crops.

Ethane prices remained relatively flat at both hubs as the market continues to work off excess inventory levels. The Mont Belvieu price was 24 cents per gallon, which is the same level it has traded at for much of the past five months. The positive for the Gulf Coast market is that cracking capacity is very high with only one unit down in the region. This is opposite the Conway market, which experienced another slight price downturn to 19 cents per gallon. While this is at the same level it has been for much of the past four months, the concern is that there is extremely low volatility for prices at the hub, which indicates greater rejection taking place.

Heavy NGL prices held firm this week along with crude prices, which helped keep the theoretical NGL barrel (bbl.) price flat at both hubs. The Conway price rose 1% to $41.98 per bbl. with a 1% downturn in margin to $29.26 per bbl. while the Mont Belvieu price dipped very slightly to $43.04 per bbl. with a 3% downturn in margin to $30.22 per bbl.

Pentanes-plus (C5+) remained the most profitable NGL to make at both hubs at $1.57 per gallon at Conway and $1.65 per gallon at Mont Belvieu. This was followed, in order, by isobutane at $1.11 per gallon at Conway and $1.10 per gallon at Mont Belvieu; butane at $1.06 per gallon at both Conway and Mont Belvieu; propane at 88 cents per gallon at Conway and 86 cents per gallon at Mont Belvieu; and ethane at negative 4 cents per gallon at Conway and 1 cent per gallon at Mont Belvieu.

Natural gas storage levels grew at a very slow rate due to the aforementioned heating demand. According to the most recent data from the Energy Information Administration, storage levels rose 20 Bcf to 3.834 trillion cubic feet (Tcf) the week of November 8. This was 2% below the 3.914 Tcf figure posted last year at the same time and 2% greater than the five-year average of 3.776 Tcf.

Heating demand should remain strong this week according to the National Weather Service forecast, which anticipates colder-than-normal temperatures in much of the Northeast and Midwest. This will be somewhat counterbalanced by warmer-than-normal temperatures along the West Coast and into the Rockies.

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