As part of my continuing effort to share information about the relationship between energy commodity prices and nuclear power plant operations, I encourage you to read a March 31, 2008 article posted on Tradingmarkets.com titled DJ US GAS: Futures Rise On Supply Concerns, Nuclear Outages. As you can see by the date, I am a couple of days behind in my reading, so this is not a hot commodity market trading tip.
However, the article provides valuable information about the way that some market traders view news about nuclear plant outages as a buying signal for natural gas. As gas powered electricity becomes more important and as the amount of natural gas fired capacity increases, there is a more immediate market reaction as nuclear generated electricity enters and leaves the market.
As Atomic Insights readers know, the existing fleet of nuclear plants has operated at an average capacity factor in excess of 89% for the past six years, so outages do not represent a very large portion of the available plant capacity. Each operating plant, however, must shut down for about a month (some a bit less, some a bit more) every 18-24 months to replace about 1/3 of the fuel elements and to shuffle the rest of the elements around to promote even burn-up. As the linked article notes, these outages are generally scheduled for the spring and fall, periods when the market demand for electricity is lower than average.
Even with the seasonal demand lower than average, however, there is still a need to meet that demand. That often means that utilities have to rely on plants that do not run very often or at full capacity. The only sources available to replace the shut down nuclear plants are coal, natural gas and oil heated generators. In the past, the first choice has been to make more use of standby coal plants since they had cheap fuel available, but coal prices have increased enough so that is not always the default choice. Besides, there are a lot of non fuel costs associated with starting up an inactive coal fired steam plant.
Many of the newest and thermally efficient combustion plants can burn either natural gas or distillate fuels. Today’s distillate fuel price of $2.93 per gallon (from the commodity price page of Bloomberg.com) is equivalent to about $22-24 per million BTU. That price makes natural gas at $10 per million BTU look like a great deal, even if it seems pretty expensive to people who have been following natural gas prices for a while. Here is a quote from the article mentioned above:
Natural gas futures rallied Monday, rising more than 3% as ongoing supply concerns and nuclear power plant outages continued to provide support for prices.
Natural gas for May delivery on the New York Mercantile Exchange was trading 35.9 cents higher, or 3.66%, at $10.159 a million British thermal units Monday after opening floor trade 17 cents higher at $9.97/MMBtu.
Tight supplies continued to provide upward pressure for natural gas futures, with the demand for gas rising amid nuclear power plant maintenance outages. Sizable withdrawals of gas from storage over the past several weeks have left U.S. gas inventories significantly below last year’s levels.
Ordinarily, the price of gas drops a bit in the spring and fall. Those price dips have always been a buying opportunity for utilities that own storage systems and allows the average price charged to consumers to be a bit lower than the peaks in the winter and summer. Maybe there is a good reason why there are now a bunch of Texan gas drillers working hard and spending lots of money to fracture certain shale formations in the Pennsylvania hills. (Gas producers rush to Pennsylvania)
Wonder how New Yorkers and New Englanders would feel if they had to pay the natural gas prices that would result if Indian Point were permanently removed from production?