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Credit Suisse - Natural Gas May Be Forming Near-Term
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■ Some Signs of Coal Displacement: With gas prices now trading below delivered coal prices on the East coast (when adjusting for environmental factors, transportation and differences in burn efficiency, see Exhibit 3), we are hearing anecdotes of
displacement of coal by natural gas (perhaps ~1 Bcf/d impact). We estimate the all-in cost of eastern coal (CAPP) to be $4.50 to $5.00 versus cash gas in the low $4's. While very difficult to quantify, coal displacement can occur for periods of time and is most likely to occur in the Southeast, which is a heavy coal consumer and is also well tied-in to the gas grid. Coal displacement is most likely to see its largest impact during
the shoulder season (April/May), when baseload coal units go through seasonal maintenance. Coal stockpiles at utilites as of February (estimated) are at 56 days, up 15% yr/yr and 29% over the 10-year average so we'd soon expect to see some price
convergence over the summer.
■ Fertilizer Demand Declines May Be Bottoming: Ethane frac spreads have recently seen a reversal in the negative trends in Q4’08 (bottoming at -$1.50 per MMBtu on
12/4/08), and have climbed back to $0.97 per MMBtu as of today (see Exhibit 4). Rising ethane fracs may indicate rising petrochemicals production. On the fertilizer side, it appears that Nitrogen and Urea production has risen from the bottom (natural gas is a key input). With planting season coming soon, its likely that fertilizer production will see some increase in the coming months.
■ LNG Imports Have Fallen Back to Previous Lows: We think that concerns about near-term LNG import rises may be overstated. We estimate that recent imports have fallen back to the ~800 MMcf/d level, which is fairly in line with early this year and inline with a year ago. While we certainly expect imports to rise as we head into summer (2 Bcf/d+), the impact may be delayed for several reasons. For one, storage in Europe
is quite low and it could take several months to rebuild it (Spain, U.K.). Also, the U.K. has recently doubled the size of its main import terminal (Isle of Grain) and has purchased 4 cargoes in recent weeks (the U.K. is likely to have record LNG imports in March). India has also been buying gas in the chemical sector as global gas prices have fallen below naptha (light oil). Another big factor has been the lack of consistency in the operations of existing trains, particularly in Nigeria (running only ~40%), Norway (~75%) and Algeria (~80%). Rises will eventually come as new trains come on-line
(particularly in Qatar) and as an important Japanese nuclear facility (Kashiwazaki- Kariwa) comes back on-line, but it may take until later in the summer for the impact to
be felt




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thanks to Dennis at BDBBR. http://siliconinvestor.advfn.com/readmsg.aspx?msgid=25519286