Tuesday, January 18, 2022

Insight 2022: Gas-powered generation sees momentum as US coal supplies falter

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Gas-powered electricity burns 1.8 bcf/d vs 3 year average

Production share of coal in MISO reduced by about 15%

Low production, limited coal supply by reserves

US gas-burning demand is set to continue to perform well in 2022 as low coal production and stockpile levels likely remain, limiting price-driven fuel switching by power generators.

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Data from S&P Global Platts Analytics shows that in the fourth quarter so far, US gas-fired power burns are trending near 30 bcf/d, up 1.8 bcf/d, or about 6%, from the previous three-year average. is more.

Given this year’s historically high gas prices, demand for gas from power generators has been surprisingly strong recently. In US benchmark Henry Hub, the NYMEX quick-month futures contract averaged less than $5/MMBtu in the fourth quarter, up more than 75%, or about $2.10, data from S&P Global Platts shows.

High gas prices have historically affected demand for generator gas. Recently, however, tightening coal supplies and rising fuel prices have limited the ability of generators to move away from gas – a trend that has clearly emerged in late 2021 and will continue into the new year. is likely to.

miso

The emerging pressure on coal-fired production has become most clearly evident in the medium-continent’s independent system operator sector.

Since late summer, the share of electricity generation in MISO has been reduced to coal, giving way to both wind and natural gas. In December, coal accounted for just 30% of total electricity generation in MISO – down from the roughly 45% share in August, shows data from ISO.

Over the same period, wind accounted for about 19% of MISO power generation in December, accounting for about 10 percentage points. Gas made a slight profit in the period, but still climbed about 1 percentage point for about 31% of MISO electricity generation in December.

The downward pressure on coal production at MISO, and the broader US power generation market, comes as domestic production of the fuel stalled and inventory levels brush against historic lows.

Insight 2022: Gas-powered generation sees momentum as US coal supplies falter

coal approach

In the fourth quarter, weekly US coal production averaged about 11.35 million short tons, according to data from the US Energy Information Administration. US coal production remains 2 million cents, or about 18%, below its last five-year average level, after falling to a several-year low in 2020 because of the pandemic.

During the pandemic, a steady decline in coal production has also pushed inventories to historic lows. As of Sept. 30, EIA data shows the US stockpile at just 80.4 million cents — a drop of about 38% from its prior-year estimated level at 129 million cents.

Low production and inventory levels have helped propel Central Appalachian coal prices. In November, CAPP thermal coal prices hit a 13-year high of $100/cent. S&P Global Platts data shows an uptick in supply in December has subsequently driven prices down, falling to around $94 a cent in recent trading.

Insight 2022: Gas-powered generation sees momentum as US coal supplies falter

gas burn prices

During the current heating season, high gas prices – even in the upper $3s/MMBtu – will undoubtedly continue to be a deterrent when it comes to burning electricity. According to recent forecasts from Platts Analytics, generator demand for gas this winter should comfortably run below levels recorded over the past three heating seasons.

Current forecasts, however, also reflect emerging limits on price-induced gas-to-coal switching. Even with gas prices exceeding $4, the generator’s ability to move away from the fuel has been compromised by recent declines in coal production and storage levels and higher prices for the fuel.

A further boom for gas-fired power generation could come ahead of the upcoming heating season. With a backward forward curve promising lower gas prices by mid-2022, the price-driven incentive to move away from gas may be less, especially if prices fall below $3/MMBtu. As of mid-December, the 2022 calendar-year curve is now trading closer to $3.80/MMBtu, the most recently published M2M forward data from S&P Global Platts shows.

Nation World News Deskhttps://nationworldnews.com
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