Low prices boost Midwest gas-fired generation, despite weather

New York — Low priced natural gas is continuing to grab market share from coal in the Midwest power market this month, despite notably lower power load there, which has accompanied milder temperatures this winter.

At the Chicago city-gate, gas prices this month have averaged just $1.93/MMBtu. That's down nearly $1.10/MMBtu or more than 35% compared to January 2018 and about 17 cents/MMBtu lower compared to last month, S&P Global Platts data shows.

The continued slide in Midwest gas prices this winter is giving gas-fired generation an edge, even compared to last month. In the Midwest Independent System Operator or MISO and Southwest Power Pool or SPP territories, thermal load share for gas has climbed to an average 52% this month, up from 46% in December.

Thermal load share refers exclusively to gas and coal-fired generation, as defined by S&P Global Platts Analytics. Including wind, hydro, nuclear and other power generation sources, total market share for gas in MISO and SPP generation stacks has climbed to 33% this month, up from 30% in December. Over the same period, total market share for coal, among all fuel types, has declined to 31%, from 36%.

GENERATOR DEMAND

Rising market share for gas in the Midwest comes despite a continued decline in total power generation – a consequence of milder temperatures and lower load this winter.

In January, total generation in MISO and SPP combined has averaged 1,649 MW, down 17 aMW from last month and about 84 aMW lower compared to January 2019, Platts Analytics data shows.

Most of that decline appears weather related with month-to-date temperatures across the Midwest market area averaging nearly 24 Fahrenheit, or about 4.3 degrees warmer than normal.

Despite milder temperatures and lower overall generation, gas-fired output has so far averaged nearly 550 MW this month, up from 515 aMW in December and 405 aMW in January 2019.

Over the same two comparison periods, generator demand for gas has also climbed sharply, rising to an average 3.3 Bcf/d this month, up from 2.9 Bcf/d in December and just 2.3 Bcf/d in January 2019.

OUTLOOK

Lower gas prices and stronger gas-fired generation in MISO and SPP appears likely to continue, at least through early February as warmer temperatures limit demand for other fuel types.

Over the next week, Midwest temperatures are expected to average about 5 degrees above normal, according to forecast data from Platts Analytics.

In the medium term, forward markets are pricing in a lower-for-longer scenario in the Midwest.

At the Chicago city-gate, calendar-month contracts from February through October 2020 are now priced at an average of just $1.85/MMBtu, falling as low as $1.78/MMBtu in May, Platts M2MS data shows.