Natural gas burn from power generators hits record levels

By Andy Huenefeld, U.S. Energy | July 25, 2016

Intense heat across populous areas of the U.S. in the second half of July has fueled record usage of natural gas from power generators. Some estimates show demand as high as 40 Bcf on peak generation days for the first time ever. Average burn continues to outpace year-ago levels by 1-2 Bcf per day. The landscape of power generation heavily has favored natural gas usage in recent years, but a perfect storm has materialized in 2016 with recent retirements of coal-fired assets, a price structure that economically favors natural gas generation, and heavy cooling requirements so far this summer. These factors have combined to lead to unprecedented usage of natural gas from this key demand sector.

With natural gas storage inventories exiting last winter at record levels, a major shift in the supply and demand balance was needed to prevent storage from reaching capacity this summer. As expected, the power generation sector – which has proven to be able to ramp up consumption in response to low prices to help rebalance the natural gas market – stepped up to the plate. Since the spring, consumption from this sector consistently has outpaced year-ago levels, helping to erode the surplus in underground storage levels.

June saw record heat across the country according to NOAA. On an average-temperature basis, June 2016 was the hottest June in at least 122 years. July is shaping up to potentially set a record as well, and longer-range forecasts that encompass the remainder of cooling season strongly favor a widespread warmer-than-normal solution. These outlooks lend support to the idea of a record summer for natural gas demand from power generators.

Pricing across the forward curve rallied sharply from March through June, but has so far remained relatively stagnant in July. However, as long as warmer-than-normal temperatures continue to dominate the landscape, an element of upside price risk remains prevalent in the marketplace. Price seasonality begins shifting to the downside in mid- to late August, but heavy demand, falling production, and record exports are expected to continue to provide a level of fundamental support to the market beyond the end of the summer.









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