Strictly: Drilling II Message Board

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Strategies & Market Trends : Strictly: Drilling II

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To: nspolar who wrote (6608)	1/20/2002 10:50:05 AM
From: russwinter	Read Replies (2) of 36161

<don't put that much stake in 'maintenance' issues.> I gleaned the nuke issue in a superb Raymond James report written last fall by Fred Schultz. It's no longer on line, but I copied it. It explains the incredible gas storage build. Schultz felt the exceptionally high injection rates (more accurately the poor draw downs) were caused by a dramatic "overworking" (97% of capacity in 2001 versus about 85% normally) of the nuclear power system. The estimate is that nuclear's y-o-y supply impact was 15,000 million kwh during August-Sept-Oct (nearly 100% of capacity: 98 gigawatts). That was an offset to gas fired plants and is equivalent to 3.5 bcf/d of NG. This also came at the moment that marginal NG production from the "mini-boomlet" hit the market, and that the 911 event temporarily disrupted the economy. Schultz then wrote that this all time record performance of the nuke fleet will reverse. Why? Because after running the fleet so hard for the past two years, a significant amount of generation is slated to come off line in 2002 for repairs and refueling. He also suggested that coal production can not fill the gap. Right now nuke generation is undergoing another surge (that I think explains in part the current 2.25 NG price) and he estimated that Feb-March-April will be the last hurrah with y-o-y running about 5,000-10,000 m kwh (1.5-2.5 bcf/day). Then starting about April and continuing throughout the rest of the year nuke production falls off the cliff with a 15,000 m kwh (3.5 bcf/d) swing the other way. Schultz felt this was conservative and that there could be an even greater swing. If you note work by Simmons and others there is also a lag of about six-nine months on the NG price and future output. The collapse in NG prices occurred in the fall months and rig activity has been declining since. This suggests that NG production is in the process of also falling off a cliff: just in time for the spring-summer nuke declines. Translation: a severe supply side squeeze will leave NG storage surprisingly low by next fall, especially if combined with a hot summer. Buy straw hats in winter. Then if we get cold weather next winter?

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