Record temperatures will increase electricity demand, but not natural gas or coal prices
Energize Weekly, June 26, 2024
Record temperatures are set to increase electricity demand this summer, but analyses find that a combination of ample gas storage and more renewable generation will help prevent a spike in natural gas prices.
“We expect the U.S. natural gas supply/demand balance to continue to tighten as the record-breaking early summer temperatures that enveloped much of the U.S. and eastern Canada have boosted gas-generated electricity demand,” the financial services firm Morningstar said in a note.
Morningstar said that with the bulk of electricity generation needed to meet summer air-conditioning demand still ahead, supplies are expected to tighten.
“However, since gas storage remains ample, further significant changes in market conditions would be required for the market to enter the 2024-25 winter with inventory at an average or below-average level,” according to Morningstar.
Similarly, after a mild winter coal stocks are also ample.
This summer is forecast to be one the hottest on record, and 16 states in the Midwest and East, with about 70 million people, are already laboring under a heat dome that has pushed temperature 10 degrees to 15 degrees Fahrenheit above average,
Albany and Buffalo, New York, Boston, Cleveland, Hartford and Portland, Maine are among the cities that set or tied temperature records.
The Independent System Operator-New England recorded a peak demand of 23,324 megawatts (MW) on June 20, close to the New England ISO’s summer peak demand forecast of 24,553 MW.
Overall, the U.S. Energy Information Administration (EIA) is projecting a 4.4 percent increase in electricity load for the country compared to the summer of 2023.
Nevertheless, the rising electricity demand will not lead to a natural gas price spike or much higher consumer electricity bills.
U.S. underground gas storage inventories, measured in billion of cubic feet or bcf, are 14 percent above year-ago stocks and at 2,974 billion bcf, are 24 percent above the five-year average.
For all of 2024, Morningstar is forecasting the New York Mercantile Exchange natural gas price to average $2.50 a thousand cubic feet, in line with its previous forecast.
Among the factors moderating the electricity generating demand and prices for natural gas are alternative generation sources.
The total net summer generating capacity is projected to increase by 3.4 percent this summer to about 1,207 gigawatts, with most of the additions in wind and solar, according to a U.S. Department of Energy summer reliability assessment.
“Growth in electricity generation will be largely driven by increased renewable energy production,” the EIA said.
The mild winter also left large inventories of steam coal at U.S. power plants, lowering the price of coal.
“Despite the recent surge in electricity demand, inventories at coal-fired power plants remain higher than normal,” Morningstar said. “Readily available coal stockpiles will tend to hold back the coal price and, therefore, constrain both gas demand and pricing.”
All this we lead to an only modest impact on residential bills, even with the increased demand for electricity, according to the EIA.
“We expect that residential customers’ monthly electricity bills will average $173 in the United States, slightly higher than last summer’s average of $168,” the agency said.
