Tsunami in Natural Gas?

Geojit Comtrade has come out with a report on Tsunami in Natural Gas.

Energy Switching: With over one quarter of Japan's electricity requirement being sourced from nuclear energy, the loss of its eleven nuclear reactors to Tsunami, has taken out a approximately 10831 MW of thermal power generation, according to Reuters reports. Japan, which is the the world's largest importer of seaborne coal and LNG and the world's third-largest consumer of oil, would step up the usage of these alternate sources of energy to make up for the loss of the nuclear energy. Even as this means that Natural Gas' demand should remain firm, it may not increase substantially, as the spare generation capacity appears to be more limited according to IEA reports. In 2010, Japan imported 70 million tonnes of LNG.

Impact on US Natural Gas prices: According to IEA, with little domestic production, Japan relies almost entirely on imports to meet its gas demand. Due to the lack of international pipelines, all of the gas imports are in the form of LNG. However, even if Japan's Natural Gas consumption goes up significantly, the immediate impact would be more in the nature of a domino rather than direct. Australia, Qatar and ASEAN gas producers (Indonesia, Malaysia and Brunei) are the main import sources of gas for Japan.

Bullish Storage Data: Last thursday's weekly inventory report from Energy Information Administration (EIA) showed that US Natural Gas storage draw of 56 bcf for the week, was more than forecast and the previous year's draw of 25 bcf for similar period. Early estimates for this week's EIA storage report range from a draw of 8 bcf to a build of 20 bcf, versus a year-ago gain of 7 bcf and a fiveyear average decline of about 17 bcf.

Temperatures in US point to more NG consumption: Temperatures in key gas consuming cities New York and Chicago were seen mostly above normal for the next six days, with lows climbing into the 40s Fahrenheit in both cities, Telvent DTN said. The National Weather Service's six to 10-day outlook issued Wednesday again called for above-normal temperatures across the South and some below-normal readings in the West and Northeast. Baker Hughes data last week showed the number of rigs drilling for natural gas in the United States fell 17 to 882, the lowest level in 13 months. But horizontal rigs- the type most often used to extract oil or gas from shale- rose 11 to 981, after hitting a record high 984 three weeks ago, according to Reuters reports.

OUTLOOK: Even though neither Japanese demand, nor US rig count point conclusively towards price rise, the cumulative effect has been positive, whose momentum could continue in the short term if temperatures in Gas consuming regions in US support. To this end, longs in NATURALGAS MCX March futures are advised while above 185-182 (Rs./mmbtu), aiming for a projected target of 195 and thereafter, 202. Risk to downside starts once below 185/82.

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