Analysis: Weather, higher gas prices to snuff out Midwest power burn rally in September

Cooler temperatures, higher natural gas prices and stronger wind generation in the Midwest in September will see regional power burn continue to fall from record levels and possibly underperform historical levels this autumn, according to S&P Global Platts Analytics.

Over the past week, milder late summer temperatures already appear to be taking a toll.

In the past seven days, temperatures across the Midwest have remained less than 1 degree Fahrenheit above normal. Over the same period, regional power burn fell to 3.1 Bcf/d, down about 450 MMcf/d, or nearly 13%, compared with August's average.

That trend is not expected to reverse.

Through mid-September, temperatures are set to average nearly 3 F below normal, dropping regional power burn to an average of 2.7 Bcf/d over the next 14 days, according to Platts Analytics.

According to the US National Weather Service, the Midwest should see cooler temperatures continue through the end of the month. In states across the Upper Midwest, the Plains and the Lower Mississippi River Valley, September has a 33% to 40% chance for below-normal temperatures, it said.

Coal switching

Cooler temperatures, of course, are not the only factor putting pressure on Midwest power burn – higher prices are also at play. At Chicago city-gates, the cash price averaged $2.21/MMBtu in the past two weeks, compared with an average of $1.88/MMBtu in the first half of August.

At least some Midwest generators are already making the switch from gas to coal.

In the Midwest Independent System Operator and the Southwest Power Pool footprints — the two grid operators that comprise most of the Midwest — market share for coal is on the rise at the expense of gas.

During the second half of August, gas' share of the MISO generation stack declined 3.1 percentage points compared with the first two weeks of the month. Over the same period, coal's share in MISO climbed by 4 percentage points, data compiled by S&P Global Platts shows.

In SPP, gas' share of the generation stack was relatively stable in August. Still, lower wind generation during the latter half of the month was largely replaced by coal-fired power, which saw a 2.4 percentage points rise during H2 August.

Wind

In both MISO and SPP, wind's share of the generation stack has been roughly stable recently.

Over the past five years, though, the market share of wind in SPP has climbed nearly 7 percentage points from August to September as seasonal wind speeds accelerate into autumn.

In September 2019, wind comprised over 28% of the SPP stack, compared with an average of 18% in August. Over the same two-month period, market share for gas fell about 6.5 percentage points.

While SPP's market territory in Oklahoma, Kansas, Nebraska and portions of the Dakotas comprises a comparatively less-populated region of the Midwest, the lost generation share there to wind could still weigh significantly on regional power burn later in the current month, according to Platts Analytics.