Gas-burn forecast to fall in 2023, frees up volumes for exports

Tuesday, 03 January 2023
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Gas consumption in the US electric power sector is expected to decline in 2023 amid continuing growth in LNG exports. Though gas storages in Europe are now largely full, analysts say it will require significant volumes of LNG in the coming months to maintain adequate wintertime supply now that Russia has largely cut off pipeline gas deliveries.

This year, US utilities keep burning more gas to produce electricity despite a stark rise in fuel prices, reaching a peak of 6.37 million Megawatt-hours (MWh) on July 21, 2022, according to the EIA’s Hourly Electric Grid Monitor. Analysts relate the soaring gas-burn throughout the summer to above-normal temperatures, reduced coal-fired electricity generation, and recent natural gas-fired capacity additions.

In the first eight months of this year, gas-burn in the electric power sector increased 7 percent to 33.2 Bcf/d – though gas prices at the benchmark Henry Hub averaged $6.41 per MMBtu over that period, compared with pre-year prices at just $3.43 per MMBtu. Gas prices were as low as $1.86 per MMBtu in 2020 – at the height of the pandemic – but have increased ever since as few new large fields are coming onstream while supply of Russian gas to Western countries has come to a near-halt in retaliation to sanctions due to the Kremlin’s war in Ukraine.

Coal constraints limit fuel switching

Typically, higher natural gas prices reduce natural gas price competitiveness relative to other sources, especially coal. Switching from gas- to coal-fired power generation would hence be the normal reaction of utilities in search of maximising margins.

But this summer, dispatch of coal-fired power plants was substantially lower than in previous summers. Continued retirements of coal-fired generating plants, relatively high coal prices, and lower-than-average coal stocks at power plants have limited coal consumption. In May, coal inventories at power plants averaged 20% lower than the prior-year levels.

Looking ahead, analysts at the US Energy Information Administration (EIA) expect gas-burn in the US power sector to fall in the fourth quarter of this year and during 2023, as more wind and solar power capacity becomes operational. Cold temperature over the winter, especially in January, will increase gas demand for space heating. Gas consumption is forecast to rise this year in the residential sector by 0.9 Bcf/d, in the commercial sector by 0.7 Bcf/d, and in the industrial sector by 0.4 Bcf/d from 2021-levels.

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