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With Coal in Rear View Mirror, Renewables Look to Battle Natural Gas Next for Market Share


Austin, TX (June 11, 2019) – Drillinginfo, the leading energy SaaS and data analytics company, has released Gas Power Burn, an update on fuels used to power America’s domestic electric market. This is an interim report covering the dynamics of the natural gas power demand market in the U.S.

“While no one can predict the future – or the weather – our modeling is projecting a glimpse of how renewables will affect power burn in the U.S.,” said Rob McBride, Senior Director of Market Intelligence at Drillinginfo. “From forecasting out a year in advance, to next-day load forecasts, we’re finding utility operators, power marketers, and other power buyers are tapping machine learning technology to obtain accurate, actionable information. When it comes to load forecasting, accuracy matters,” said McBride.

The report draws from historical data related to time of year, weather, and traditional power use. For example, during the summer months, natural gas demand from the electric power sector makes up a larger share of total domestic gas demand compared to winter. Last summer, power burn represented 49 percent of the total gas demand consumed in the U.S. While winter heating demand from the residential and commercial sectors is very price inelastic due to a lack of substitutes, summer cooling demand from the power sector is price sensitive. Grid operators have the flexibility to respond to changes in the pricing of input fuels by substituting coal and gas for each other. The share of total power generation attributed to gas has been growing over the past several years due to changes in infrastructure, most specifically additions to power plant fleets fueled with gas and added gas transport capacity.

As the report indicates, that could change as a number of wind and solar projects are slated to come online over the next five years. From 2019 to 2020, if all wind and solar projects come online as expected, and run at 100 percent capacity, wind and solar power generation will displace 1.42 Bcf/d of gas demand for power burn.

Regional Power Outlooks:
Retail sales of power differ by region, with some sales being above or below total generation. If retail sales are above total generation, the region needs to import power to meet demand. If retail sales are below total generation, the region has excess power generation and needs to export the excess. Gas Power Burn highlights two prominent regions in the U.S.

Northeast — The grid in the Northeast region is dominated by gas and nuclear. Although some switching capacity remains, coal is mostly gone from the region. Nuclear plants continue to face pressure from low power prices caused by cheap gas and a lack of demand growth. The Pilgrim (MA) nuclear plant is set to retire by June 1, 2019. Following Pilgrim is Indian Point (NY), which may retire unit 2 by May 2020 and unit 3 by May 2021. These three units represent 30 percent of the nuclear capacity in the region. As these units retire and nuclear generation decreases, wind is expected to pick up the generation capacity.

PJM-East — The PJM-East region remains very coal-heavy despite decreasing coal generation and retirements over the past several years. Local coal production makes the fuel more competitive compared to other regions. Over the next 5 years, 43% (14.5 GW) of new gas-fired capacity in the US is expected to be in the PJM-East region. If all announcements come online, this region will add 3.6 GW (or 4%) over the next year, compared to 8.8 GW over the past year. In the next 5 years, it would add 14.5 GW (or a 17% increase from today), compared to 25.3 GW over the past 5 years. With nuclear generation holding steady over the past few years and very little generation from other sources, gas is set to take market share from coal as new plants come online.

Key Takeaways from the Report:

  • The share of total power generation attributed to natural gas has been growing over the past several years due to changes in infrastructure, most specifically additions to power plant fleets fueled with gas and added gas transport capacity.
  • Power burn represents almost 50% of the total gas demand consumed in the U.S. during the summer months.
  • In 2019, demand for power during May-August is expected to average 35.2 Bcf/d. Warmer weather, similar to the summer of 2011, will cause gas demand for power burn to exceed 2018 and reach 36.5 Bcf/d. However, having a cooler summer similar to 2014 will cause weak power burn demand, taking power burn down to 34.0 Bcf/d.
  • End of injection season storage inventories will be greatly impacted by summer weather. Warmer temperatures will cause higher power demand and less gas going into storage, while cooler temperatures will do the opposite. Drillinginfo analysts expect storage inventories to end the injection season between 3.6 Tcf and 3.7 Tcf.
  • Renewables and natural gas continue to increase their shares on the supply stack for electricity generation as coal and nuclear decline. However, some coal-to-gas switching capacity remains, but it is more limited.
  • For natural gas, the battle is now with renewables. With a number of wind and solar projects slated to come online over the next couple of years, natural gas demand could decline by 1.2-1.4 Bcf/d, should all projects come online as expected.

Members of the media can download an 11-page preview of Gas Power Burn or contact Jon Haubert to schedule an interview with one of Drillinginfo’s market analysts.