Guest “Thanks Joe!” by David Middleton
JULY 22, 2021
Summer U.S. natural gas prices are the highest since 2014
In June, the U.S. natural gas spot price at the Henry Hub averaged $3.26 per million British thermal units (MMBtu), the highest price during any summer month (April–September) since 2014. Prices in July have increased from June, averaging $3.67/MMBtu through the first two weeks of July. Spot prices for July 14 in every one of the more than 175 pricing hubs tracked by Natural Gas Intelligence exceeded $3.00/MMBtu. These hubs include supply hubs that have traditionally traded at notable discounts to the Henry Hub, such as the Eastern Gas South hub (formerly known as Dominion South), located near production activities in the Appalachia Basin, and the Waha hub, located near production activities in the Permian Basin.
Tighter U.S. natural gas supply and demand balances in recent months contributed to price increases. This summer, more natural gas exports—both those sent by pipeline and those sent as liquefied natural gas—have reduced the supply available for domestic consumption. Warm weather this summer has also increased natural gas consumption for electric power. According to the National Oceanic and Atmospheric Administration (NOAA), June 2021 was the hottest June on record for the United States. Drought conditions in the western United States, in particular, have contributed to increased natural gas-fired generation to offset decreased hydroelectric generation. According to our Hourly Electric Grid Monitor, natural gas-fired generation in the Northwest averaged 240 gigawatthours (GWh) in June 2021, an increase of 50% compared with last year. During the same period, hydroelectric generation fell 20% to 410 GWh.
Less natural gas has been injected into working storage in the United States than average this summer, exerting further upward pressure on prices. According to our latest Weekly Natural Gas Storage Report, working natural gas in storage began the injection season (April 1–October 31) at 1,784 billion cubic feet (Bcf), only 24 Bcf less than the five-year average. U.S. working natural gas inventories are now at 2,629 Bcf, 189 Bcf below the five-year average and 543 Bcf below last year’s inventories at this time.
According to our latest Short-Term Energy Outlook, we expect that tight U.S. natural gas market balances will continue through the rest of 2021. We forecast the spot price at the Henry Hub will average above $3.00/MMBtu through March 2022 and will average $2.96/MMBtu in the second half of 2022.
Principal contributor: Stephen York
Natural gas prices are even booming in the Permian Basin (Waha Hub), where summer gas prices struggle to stay above $0/mmBtu.
Despite the Shamdemic lockdowns and Winter Storm Younger Dryas, US LNG exports continue to grow…
In other good news…
SHORT-TERM ENERGY OUTLOOK
Release Date: July 7, 2021
One of the largest shifts in fuels for electricity generation in recent years has been the industry’s reduced use of coal and increased use of natural gas. Coal-fired electricity generation in the United States has declined almost every year over the past decade. The amount of U.S. coal generation in 2020 was 62% below its high in 2007. In contrast, natural gas generation grew by 86% between 2007 and 2020.
Both regulatory and economic factors are driving this trend of declining coal use and rising natural gas use. One of the most important drivers has been the sustained low cost of natural gas, which reached the lowest level in decades last year. In 2020, the price of natural gas delivered to electric generators averaged $2.39/MMBtu. However, natural gas prices have been rising in recent months now that the economy is beginning to recover from the effects of the pandemic, but U.S. production of natural gas is growing at a slower pace. In April 2021, the most recent available history, the delivered natural gas price to electricity generators averaged $3.04/MMBtu. Expected natural gas costs remain relatively elevated through the forecast and delivered prices average $3.44/MMBtu in 2H21.
These expected changes in the costs of fuels used for generating power will likely reverse some of the recent trends in the use of coal and natural gas for electricity generation, at least temporarily. We forecast that the natural gas-fired share of total U.S. generation will decline from 39% in 2020 to 36% in both 2021 and 2022, which would be close to what the natural gas share was in 2019. The expected rise in natural gas costs make coal more economical for electricity generation. The forecast share of generation from coal-fired power plants rises from 20% last year to 24% in 2021 and 22% in 2022.