By: Jude Clemente |
Even more so going forward, natural gas will be the main source of U.S. electricity, currently at 33% of all generation.
Electricity accounts for a leading 35% of total U.S. gas demand, or a rising 9.6 trillion cubic feet consumed for power burn per year. Impressively, even though U.S. power consumption has been flat, our gas used to generate electricity is up 42% in the shale-era since 2008.
The current winter has seen the highest natural gas prices since 2014, with the most prompt month price volatility in over a decade. Gas prices started to increase in early-November, when a cold and early start to winter was augmented by short covering and a 20% gas storage deficit to the five-year average that helped push prices up.
Gas used for electricity has been fluctuating along with prices
In the three weeks from Halloween to the day before Thanksgiving, Henry Hub gas prices jumped from $3.31 per MMBtu to $4.70.
Utilities cut back on their gas usage and ramped up coal power. Right before Christmas, coal production and transport was at its highest level since August 2017.
Currently, in most areas, higher prices can still result in “demand destruction” for gas because there are viable alternatives.
But as we move forward, this will become more challenging because substitutes for gas are contracting
Namely, with more coal and nuclear plants being retired prematurely, it will be increasingly more difficult to cut gas demand even if prices rise, as we are installing a lower “price elasticity of demand.” After all, “Electricity, an Essential Necessity in Our Life” cannot NOT be used.
Some 20% of the U.S. coal fleet has been retired since 2011, with more to come (4,500 megawatts of coal retiring this year alone). And six nuclear units have retired since 2012, with another 15 coming over the next seven years, including the infamous Three Mile Island going this year.
The renewables being promoted as perfect substitutes for baseload coal and nuclear are naturally intermittent, meaning that gas will become the clear cut favorite.
In fact, not just better suited to displace coal and nuclear, gas is also being used to back up wind and solar themselves. “Natural Gas Is The Flexibility Needed For More Wind And Solar.” Texas for wind and California for solar are not examples for other states because they are exactly what you think they are: overly windy and overly sunny.
Natural gas is soaring towards being 50% of all U.S. power generation capacity. Gas’ share of yearly new capacity being installed in the country was 50% in 2017, 75% in 2018, and is expected at 35% in 2019. The builds this year will center in Pennsylvania, Florida, and Louisiana.
Note: coal-based Pennsylvania increasingly turning to natural gas will be a game changer for others because of how much gas they receive from Pennsylvania, our second leading gas producing state at 20% of all U.S. output. Nearly 30 gas plants and over 26,000 MW of new gas capacity are in the works in Appalachia.
All other states must take notice: Appalachia accounts for 37% of all U.S. gas production and has been the primary reason why surrounding states have been able to turn more to gas.
Although it will be harder to not use gas regardless of price, one balancing factor is that gas plants continue to get more efficient, meaning lower amounts of gas are needed to generate greater amounts of electricity: “U.S. Natural Gas Electricity Efficiency is Always Improving.”
With such a massive gas build-out, the floor and ceiling for summer gas usage continues to go up. Expect another uptick in gas power demand this coming summer, even if prices go up. Considering our current 15% gas storage deficit (and some cold and snow coming in numerous areas this weekend), prices could be higher this summer than they have been in years.
Recent summer gas prices have been historically quite low. Henry Hub spot has been averaging well below $3 in June, July, and August for every year since 2014.
And yes, our summers have been indeed been getting hotter, with cooling degree days rising over time.
Particularly as our push for “electrification” continues to broaden, gas will shoulder even more of the workload.