US natural gas supply outpaces summer generation

OREANDA-NEWS. September 14, 2015.  US power generators produced nearly 2pc more electricity during this year's summer demand period than last year, highlighting the sector's growing use of abundant, low-cost domestic natural gas.

Before Memorial Day, Edison Electric Institute data showed US power output lagging nearly 1pc behind 2014's output for the first five months of the year. By Labor Day, year-over-year power production was running 19,000GWh, or nearly 1pc, ahead of the previous year.

Power generators have embraced low natural gas prices even more so than in 2012 when soaring production led to a massive stock build that depressed prices to a 10-year low.

"In 2012, coal generation was under distress" from marginal economics, said Calpine senior vice president Andrew Novotny. "In 2015, this is more of an epic battle for market share and coal generation is losing share more for structural reasons that are going to become permanent."

Spot prices this summer have plunged from 2014. US benchmark prices from 1 June to 31 August averaged \\$2.78/mmBtu — down by a third from a year earlier and roughly in line with summer 2012 when gas took a significant share of power sector demand from coal.

Low prices spurred record gas demand from the power sector early in this summer, the US Energy Information Administration (EIA) reported, a trend that likely continued with rising summer temperatures.

Electric production accounted for 46pc of total gas consumption in June. Gas deliveries to power plants rose by 23pc from June 2014, to 29.6 Bcf/d, the highest amount for any June on record, EIA said.

Meanwhile, year-over-year gas deliveries to industrial, commercial and residential customers fell in June for the fourth consecutive month, EIA said.

Summer power demand was unable to absorb plentiful US gas production, allowing storage levels to swell beyond the five-year average. But given a lack of power demand growth seen since the 2008 recession, the summer of 2015 may mark a bright spot for utilities as they begin to see signs of renewed customer growth.

Even without prolonged heat, peak demand in every US power region this summer matched or exceeded 2014, with the except of the coal-heavy mid-Atlantic region.

Texas led the way with continued economic growth and a spurt of hot weather in early August that propelled peak-hour demand up by 1.9pc. The new all-time record of 69.6GW was not expected to be reached until next summer.

The Electric Reliability Council of Texas (ERCOT) said the 2015 peak surpassed the 2011 record set during an extended statewide heat wave and drought and was 4.8pc higher than summer 2014 when cooler weather prevailed.

In Texas, gas was burned to generate 15pc more electricity in June than a year-earlier and 19pc more in July than in 2014, according to ERCOT.

In California, gas-fired resources helped meet power demand as a four-year drought continues to limit western hydropower resources.

California's electric use this week soared to nearly 47.3GW, or 6pc above 2014's peak and the highest since 2007, according to the state grid agency. Gas supplied 56pc of the electric output during the peak hour.

In New York, summer demand reached 31.1GW in late July, beating the 2014 peak by 4.6pc.

In the mid-continent states from Canada to the Gulf of Mexico, electric use also peaked in late July at 120GW, up 4.3pc from 2014, the Midcontinent Independent System Operator reported.

The Southwest Power Pool also reported a slightly higher peak of 45.8GW in July, up 1.3pc from the previous summer.

Across New England, summer power demand in late July matched the 2014 peak at 24.4GW, the independent system operator said.

Only in the PJM interconnection, the nation's largest power grid, did 2015 peak power demand fail to surpass the previous year. PJM peaked in late July at 144.3GW, 8pc below 2014.