While the Salem Harbor and Vermont Yankee retirements are worrisome this upcoming winter, we believe the plant closures are more bullish power than gas markets. New England, through its more robust Winter Reliability Program for winter 2014-15, has found two more reliable and likely cheaper sources to fuel power generation. With oil prices collapsing globally, generators will begin filling reserve tanks soon to prepare for this upcoming winter. Liquefied natural gas will be more readily available via pipeline from the Distrigas facility in Everett, Maine, because of the large Gaz Metro-GDF Suez deal that will deliver up to 1 bcf/day from Canada. In addition to 715 mmcf/day vaporized at the Distrigas facility, up to 100 mmcf/day of LNG will be delivered by truck to local distribution companies (LDCs) and gas generators. We believe fuel competition will increase the elasticity of gas demand this winter and pipeline expansions south of New England will help alleviate fear-buying from New York generators. Given the robust Winter Reliability Program in New England and current prices for fuel competition, we believe Algonquin will clear lower than current forward prices this winter. Also, we believe some of the panic buying that led to large price spikes in the gas dailies were driven by firms that did not cover or hedge their IFERC versus GDD gas exposure, causing large short covering when the cold hit last winter. We do not believe firms will make the same mistake this winter.
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