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Gas-fired power burn to test prior record by mid-July on low prices, summer heat

Gas demand from US power generators continues to outperform this month as historically low prices for the fuel combine with scorching temperatures to push burns toward prior record highs set last summer.

In July, US gas-fired power burn is averaging 44.3 Bcf/d – up about 2.6 Bcf/d, or nearly 7%, from its record month-to-date average in July 2019, S&P Global Platts Analytics data shows.

Stronger burns this summer, which have already approached last summer’s single-day record high at over 45 Bcf/d, come as historically low prices keep gas at the top of the US generation stack.

Since at least the start of May, gas-fired generation has remained cheaper than coal in SPP South, Into Southern and PJM West, according to data compiled by S&P Global Platts.

Over the same period, US gas prices have tested record lows. In the Henry Hub cash market, prices settled to a 20-year low on June 16 at just $1.38/MMBtu. On the NYMEX, the benchmark index fell to a quarter-century low on June 25, settling at $1.48/MMBtu. On July 9, Henry Hub cash and futures prices settled at $1.82 and $1.78/MMBtu, respectively, S&P Global Platts data shows.

Adding fuel to generator demand, population-weighted temperatures this month across the Midwest, Texas and the Northeast – which together account for over half of US power burn this year – are up 3.5 degrees, 0.7 degrees and 0.3 degrees Fahrenheit, respectively, compared to the same period last July.

According to a recent month-ahead forecast from the US National Weather Service, the same regions have a 50% chance for hotter-than-average weather this month, with 30% to 40% probabilities for upward temperature deviations across the entire Southeast, the Plains and much of the West.

Forecast

Over the next two weeks, modeled power burn data from Platts Analytics shows demand from US generators topping its previous record high at 45.4 Bcf/d, and potentially rising to over 47 Bcf/d as population-weighted temperatures across nearly every US region top 80 degrees with Texas pushing into the low-90s.

Stronger power burns this year, which are up on a per-degree basis compared to 2019, have defied a downturn in electricity demand that started with milder winter temperatures and was followed by pandemic-related demand destruction in office buildings, commercial spaces and industry settings.

Through June, US electricity demand has averaged nearly 4% lower compared to last year while gas-fired generation has climbed almost 7% over that period, according to Platts Analytics.

This summer, strong power burns have help to keep total US demand afloat, partly compensating for losses in the LNG export and industrial sectors which continue to struggle.

Over the past week, though, rising benchmark cash and forwards prices have begun to threaten gas’ competitive edge compared to coal. On July 8, balance-summer forwards prices for July, August and September settled at an average $1.82/MMBtu, up from an annual low at just $1.55/MMBtu in late June.
Source: Platts

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