Natural gas consumption for power generation in the United States hit a record high in July, spiking at 6.37 million megawatt-hours on July 21, just as legislators were discussing billions in investments in renewables. The reason for that spike was not enough coal generation, according to the Energy Information Administration.
It’s interesting to note that the increase in gas-powered electricity generation in July happened despite higher gas prices, themselves the consequence of higher U.S. LNG exports to energy-starved Europe.
U.S. benchmark gas prices are up by 146 percent over the past 12 months, inching closer and closer to $10 per million British thermal units. Yesterday, the front-month Henry Hub contract closed at $9.127 per mmBtu.
The last time gas generation hit a record in the U.S. was the summer of 2020, when gas prices were quite low. When gas prices rise, utilities switch to other fuels, as a report by the American Public Power Association notes. Yet, when other fuels are in short supply, utilities are forced to stick with gas, it seems.
The report makes no mention of wind, solar, and hydro, but it notes that the availability of coal generating capacity this summer was more limited than in previous years because of the ongoing retirement of coal plants.
At the same time, the Financial Times reported this week that some U.S. utilities were delaying the retirement of their coal-fired plants to avoid supply outages because of “delays in obtaining cleaner replacements and strong electricity demand,” per the report.
“While this is a difficult decision, it is necessary to maintain the reliable electricity service our communities have come to expect,” the chief executive of Omaha Public Power District, Javier Fernandez, told the FT.
It seems new wind and solar installations are not coming online fast enough and, even in places with massive build-outs, they are not sufficient to provide the kind of reliable electricity service OPPD’s Fernandez told the FT about.
Indeed, natural gas generation is far from out of favor in the U.S. Last year, the EIA reported there were 27.3 GW of planned new gas capacity to be completed between 2022 and 2025. The additions represent a 6-percent increase to 2021 capacity, which stood at 489.1 GW.
Amid this stronger demand for natural gas, especially from abroad, U.S. shale oil drillers seem to be warming to natural gas once again, Reuters reported this week. While a few years ago they were ready to ship it for next to nothing because it was dirt cheap, now gas is turning into a precious commodity and production is rising.
This month, gas output is seen reaching 93.84 billion cubic feet per day, up by some 6.715 billion cubic feet daily from a year ago. The Haynesville shale will lead with a 13.9-percent increase in production, followed by the Permian, with 7 percent, and Appalachia, where gas output is seen rising by 2.6 percent.
Electricity consumption in the United States is expected to see a 2.4-percent overall increase over 2021 thanks to higher economic activity and a hot summer. Exports will also likely remain strong even though Europe has almost filled up its gas storage caverns ahead of winter. Demand for gas, both domestic and international, appears set for more gains in the coming months.
This means that prices have further to go, especially if demand turns out higher than usual, which depends on the weather. The good news is that between them, natural gas and coal should minimize the risk of power outages in the United States in a way that they can’t in Europe because both gas and coal supply are tight.
By Charles Kennedy for Oilprice.com
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