Washington (Platts)--12Jul2007
The build-up in natural gas inventories could weigh on coal markets later this year, possibly dampening prospects for higher utility coal demand and prices, according to industry analysts and market participants. They added that high summer temperatures are needed to burn off the recent increase in gas and coal inventories. A veteran coal producer analyst said he is worried about the high build-up in gas inventories. "I am closely watching the natural gas situation as higher summer temperatures can shave off a significant amount of natural gas inventory," he said. "High gas inventories could negatively affect coal demand in the autumn and next winter. "Thus far, gas inventories have been building quickly, and this is affecting my outlook for the fall," he said. Executives from some of the major US coal producers have been touting supply cutbacks this year in making arguments for price recovery later this year. Industry insiders point out, however, that cutting back supply alone may not be enough to bring the market into balance, saying that utility demand must also be boosted to reduce excess coal inventories. High natural gas inventories and lower prices are also likely to further exacerbate the problem, as some utilities may be encouraged to burn gas instead of coal. The August NYMEX gas futures contract on Wednesday settled at $6.60/MMBtu, 9.9cts below Tuesday's settlement. The Energy Information Administration will release the latest estimates of gas storage build on Thursday, and analysts are expecting the agency to estimate a build between 91 billion cubic feet and 96 Bcf for the week ending July 6. Natural gas in storage is running at the second-highest level ever, with last year being the record year for storage. Storage injections continue to be strong and could potentially surpass last year's levels before the end of the summer, according to analysts. Total gas storage levels were 2.52 trillion cubic feet for the week ending June 29, down from 2.605 Tcf in the similar 2006 week. The 2006 injection season ended at a record 3.452 Tcf. Steve Piper, managing director of power forecasting at Platts' Analytics, said hot summer temperatures will be crucial to burn off coal and gas inventories that built up during months of warmer than usual weather. "The story at the moment is that [power] demand has not really come in that strong, particularly in the eastern US," he said. "There is plenty of summer left so that can change, but the leading indicators are the gas markets, which have collapsed over the last two weeks amid mild weather and high storage." -- Marcin Skomial, marcin_skomial@platts.com This is an excerpt. For more news, request a free trial to Platts Coal Trader at http://www.platts.com/Request%20More%20Information/index.xml?src=story
|
