After holiday weekend, US demand for natgas is expected to reach record levels
The U.S. demand for natural gas is expected to hit a record next week, as the extreme cold that has gripped the U.S. this winter will put pressure on power grids again the day following the Martin Luther King Jr. Day weekend. This week, gas futures reached two-year highs ahead of the freezing weather. Meanwhile, spot prices in several major hubs around the country have risen to their highest level since January 2024's Martin Luther King holiday weekend. The week before last, gas demand reached its current record high. Next-day prices also soared. Extreme weather in recent years has caused havoc on power grids and the markets, as demand is close to exceeding supply. A freeze in Texas, which occurred in February 2021, killed over 200 people, and left millions of people without heat, power or water for days.
These events were partly caused by the freezing of oil and gas pipelines, or freeze-offs. Some power grid operators and utility companies were forced to implement rotating outages because of a shortage of fuel. Electric Reliability Council of Texas, which operates the grid in most of Texas, has issued a weather warning for Jan. 20-23 because of extreme cold. This will increase demand and possibly lower reserves. ERCOT said that it expected normal grid conditions to continue during the weather watch.
PJM Interconnection issued a cold-weather alert for the period of Jan. 20-22. The PJM alert asked that power generators and transmission owners prepare to hire additional staff, and if necessary, postpone or reschedule scheduled maintenance.
In an email, PJM said that generation owners should take extra precautions to ensure their equipment does not freeze. It noted that the grid might reach a record-breaking demand peak this winter.
During a winter storm in December 2022, dozens power plants within PJM as well as elsewhere were unable operate due to various reasons. This included a lack fuel, after gas supplies had been curtailed because of frozen pipes and wells. Power plant owners who failed to provide electricity to PJM during the storm of 2022 agreed to pay $1.2billion to settle grid penalties for non-performance.
According to the U.S. Energy Information Administration, gas is responsible for 43% of America's electricity generation and 45% of its homes are heated by it. A combination of a possible drop in supply and an expected surge in demand could push up gas and power prices next week.
By the Numbers
The financial firm LSEG reported that the average gas production in the Lower 48 U.S. States fell from 104.2 billion cubic feet per day in December to only 103.4 bcfd in January, mainly due to freeze-offs.
Analysts noted that the number of freeze-offs in the coming days could be much higher than what has been observed so far.
In a recent note, analysts from energy consulting firm EBW Analytics stated that it was not surprising to see freeze-offs of production reach up to 20 bcfd as the cold peak intensifies. According to LSEG, the storm in February 2021 that affected Texas and other states saw gas supplies drop by as much as 20.4 bcfd within a week.
LSEG predicted total gas consumption, including exports could soar to 169.3 bcfd by Jan. 21, and 167.2 bcfd by Jan. 20. If this happens, the demand for gas on Jan. 21, 2024, would surpass the daily record of 168.4 Bcfd.
A billion cubic feet of natural gas would be enough to power five million U.S. households for one day. The amount of fuel being sent to the eight U.S. LNG export plants is on track to surpass the previous daily record of 15.5 bcfd, set on January 11. Reporting by Scott DiSavino, New York; editing by Nia Williams.
(source: Reuters)
