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U.S. Electricity Demand Reached Highest Since 2017

The front-month natural gas contract closed yesterday at $2.202/MMBtu. Stockpiles increased by 65 bcf, meanwhile, market estimates ranged from 52-67 bcf. With 13 weeks left in the injection season, the total 2,634 bcf of natural gas in storage is 14.5% (334 bcf) above last year’s 2,300 bcf and 4.5% (-123 bcf) below the five-year average of 2,757 bcf. Natural gas prices at the Transco Zone trading hub, which services NYC, increased from $2.09/MMBtu last Wednesday to $2.16/MMBtu this past Wednesday (EIA).

At 6:00 pm on July 19, demand peaked at 704 GW, which was the highest U.S. electricity demand since 2017, when it reached 718GW on July 20, 2017 (EIA). This increase in demand came because of increased air conditioning use during the week of July 15 – July 22 when the majority of the U.S. experienced a heatwave. In addition, “natural gas deliveries to U.S. facilities producing liquefied natural gas (LNG) for export set a monthly record in July 2019, averaging 6 bcf/d- 7% of the total U.S. dry natural gas production. Natural gas demand by U.S. LNG export facilities has been the fastest-growing among all natural gas demand sectors, increasing by 1.4 Bcf/d between December 2018 and July 2019, and is poised to continue to grow as new LNG facilities come online in 2019–20” (EIA).

Natural gas pricing plays a key role in electricity power pricing due to the increasing reliance on natural gas-fired generators as nuclear, coal, and oil generation is retired and mothballed. As the marginal unit of generation, gas prices are directly correlated to power pricing (more so in some regions such as NYC vs. others such as parts of PJM). We keep an eye on natural gas market fundamentals in order to provide insights into forward power pricing for our clients. Gas production is expected to continue to grow, however, there is speculation that demand growth will outpace supply primarily due to LNG and Mexican exports and increased power burn, presenting upside risk to power pricing in the future.

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