Sweltering temperatures in the United States promise new demand records for gas production

U.S. natural gas power generators are bracing for record demand this week as temperatures in states stretching from Texas to Kansas and Mississippi to Missouri soar above 100 degrees Fahrenheit.

On July 21, electricity consumption in the United States is expected to average 48.6 billion cubic feet per day in what would be a new single-day demand record, according to data from Platts Analytics. Assuming the predictions are correct, the new high would exceed the previous single-day high of July 2020 by more than 500 MMcf/d, or around 1%.

Already this month, generator gas demand has reached a July record high of 44,100 cfd. Compared to July 2020, when low prices made gas the fuel of choice for power generators, demand has increased by around 650 MMcf/d, since the beginning of the month. Compared to July 2021, demand for generators increased by 6 billion cubic feet per day, or nearly 16%, this month, according to data from S&P Global Commodity Insights.

Sweltering temperatures and fuel switching limits are giving gas a head start in the US power generation stack this summer. For the next few days at least, toasty temperatures will be the main driver of what appear to be impending demand records.

In the south-central United States, most major population centers are currently subject to excessive heat warnings or heat advisories issued by the National Weather Service. In cities like Dallas, Oklahoma City, Wichita, St. Louis, Memphis and Little Rock, highs are expected to reach 100F this week.

Through the rest of the summer, limits on switching from gas to coal also promise to boost baseload gas demand, regardless of the temperature.

Fuel change
Over the past year, the U.S. electric industry has shut down some 34 coal-fired power plants with an estimated total capacity of nearly 12.9 GW, according to data from Platts Analytics.

The recent plant closures come on top of even larger waves of coal-fired plant retirements in previous years. As coal-generating capacity in the United States continues to decline, gas has increasingly become the primary source of thermal energy in the United States, leaving electricity generators more dependent on fuel, regardless his price.

Constraints on thermal coal supply this year have further limited the use of fuel for power generation this year. At the end of March 2022, US consumption coal inventories were estimated at 116.8 million st, up only marginally from a more than 20-year low of 108.6 million st in the quarter ending September 30, 2021, according to recent data from the US Energy Administration information shows.

Coal production, meanwhile, has failed to stage a meaningful recovery after its pandemic-fueled decline. In 2022, weekly coal production in the United States averaged just under 11.2 million sts, about 12% below the previous five-year average of 12.75 million sts, according to data from the EIA.
Source: Platts