The lowest U.S. natural gas prices in decades have incentivized a record-high gas consumption for power generation amid growing electricity demand.
Even the less efficient steam turbines and single-cycle gas power plants, typically operating at peak demand periods, were fired up as the U.S. benchmark gas price hit multi-decade lows amid high inventories and a milder winter.
Natural gas power plants accounted for about two-thirds of the 4% increase in total U.S. power generation in the first four months of the year, with solar representing most of the rest of the increase, per data from the U.S. Energy Information Administration (EIA) compiled by Reuters market analyst John Kemp.
Power Sector Consumes Record-High Gas Volumes
U.S. gas power generators saw their consumption of natural gas jump by 6%, or by 213 billion cubic feet (bcf) in January to April compared to the same period last year. The total natural gas consumption by the power sector hit a record high of 3,941 bcf.
For years, natural gas has accounted for the largest share of U.S. power generation, at around 40% of all electricity-generating sources.
This year, natural gas is expected to provide around 42% of America’s electricity, similar to last year, as total consumption is set to grow by 3% in 2024 and another 2% in 2025, per data from the EIA.
This summer, gas consumption in the power sector is set to match the 2023 record, the EIA said before the beginning of the summer and the heat waves, which spurred additional gas power generation as the U.S. benchmark price at Henry Hub remained at ultra-low levels of around $2 per million British thermal units (MMBtu).
Low Costs Boost Gas Power Generation
Adjusted for inflation, this price means that power producers have had the lowest-cost gas supply so far this year, according to data from 1973, Reuters’ Kemp notes.
Amid rising power demand and cheap gas, it’s no surprise that electricity generators have maximized the use of gas-fired power generation this year.
Natural gas-fired electricity generation in the United States has jumped year-to-date compared to the same period last year, as total power demand rose with warmer temperatures and demand from data centers, while gas was abundant and cheap amid high storage levels.
Natural gas prices remain historically low due to weak winter demand amid milder weather, record output at the end of 2023, and higher-than-average natural gas stocks.
The oversupply and low prices prompted many natural gas producers to start reducing output in the spring.
But stocks remain higher than normal, weighing on prices and leading to record gas-fired generation this summer.
As of July 19, stocks of working gas were 249 Bcf higher than last year at this time and 456 Bcf above the five-year average of 2,775 Bcf, according to EIA data. At 3,231 Bcf, total working gas is also above the five-year historical range, as it has been so far this year.
A temporary shutdown at the Freeport LNG export facility due to Hurricane Beryl in July also left more gas volumes domestically, pressuring gas prices down.
U.S. natural gas power generation jumped last month amid a combination of low gas prices, soaring demand in heat waves, and low wind speeds in the extreme heat.
Last week, natural gas-fired power generation jumped amid the lowest wind power output in 33 months, while demand for cooling is rising in the summer. The hot summer with low wind speeds has led to low wind power generation, which has prompted power producers to boost natural gas-powered generation to keep up with the summer electricity demand.
On July 9, 2024, U.S. power plant operators in the Lower 48 states generated 6.9 million megawatt-hours (MWh) of electricity from natural gas, marking a record high since the collection of hourly data began on January 1, 2019. This surge in natural gas-fired generation was driven by exceptionally high temperatures across the country and a significant decrease in wind generation.
Gas Generation Set to Drop on Higher Prices and More Renewables
The summer records of gas-fired generation are likely to be followed by a decline in electricity from gas due to an expected rise in the Henry Hub prices and to higher generation from renewable sources, the EIA said in its Short-Term Energy Outlook (STEO) for July.
ADVERTISEMENT
Although natural gas continues to be the largest source of U.S. electricity generation, the EIA expects 2% less natural gas generation in the second half of 2024 compared to the same period of 2023.
“This forecast decline is due to more generation from renewable sources as well as our expectation of 7% higher Henry Hub natural gas prices in 2H24 than in 2H23,” the administration said.
Higher gas natural prices are also set to drive a 3% increase in coal generation during the second half of the year, according to the EIA estimates.
“After reviewing the responsiveness of fossil fuel generation to natural gas prices, we have revised our power generation forecast to include more generation from coal and less from natural gas than previously expected, especially in the winter months,” the EIA said.
By Tsvetana Paraskova for Oilprice.com
More Top Reads From Oilprice.com
- Venezuela's Election Authority Declares Maduro Victor in Disputed Election
- Record Production Helps ConocoPhillips Beat Q2 Profit Estimate
- Ecopetrol Pulls Out Of Deal to Buy Occidental’s CrownRock Assets
