New York — As state governments across the US continue to ban local restrictions on natural gas usage, higher prices and growing renewable power supply are still likely to weaken demand for the fuel this year.
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Kansas on March 24 moved one step closer to enacting legislation to require municipalities across the state to ensure the provision of gas and propane as options for consumers. Known as the Kansas Energy Choice Act, Senate Bill 24 was passed by the state's House of Representatives in a 93-29 vote. The measure was previously passed by the Kansas state Senate in February.
With the approval of Governor Laura Kelly, a Democrat, Kansas would join Arizona, Tennessee, Oklahoma, Louisiana, Utah, Arkansas and Mississippi to have enacted legislation to preemptively stop municipalities from banning gas usage in local buildings, according to reporting from S&P Global Market Intelligence.
The move comes in response to an ordinance passed in March 2020 by the city of Lawrence, home of the University of Kansas, setting a goal for 100% renewable-sourced power usage in the municipality by 2035.
With pending legislation in another 15 states, lawmakers stretching from the East Coast to the Desert Southwest are now attempting to enshrine, within state laws, a guaranteed market share for gas. While those efforts will likely ensure continued demand for the fuel in some residential-commercial settings, the laws are unlikely halt price-driven fuel switching or growing wind generation in the power sector – both of which are likely to depress demand for gas this year.
Fuel switching, wind generation
Across the Midwest, the Southeast and Texas, where the momentum for bans against local gas restrictions has been strongest, generator demand for the fuel is down this year.
Gas-to-coal switching has impacted demand from power generators in all three regions, but year-on-year declines in the Midwest have been among the largest in percentage terms owing to the compounding effect of higher wind generation, which is more concentrated there.
In the Upper Midwest, gas-fired power burn has averaged about 2.3 Bcf/d year to date, down about 600 MMcf/d, or nearly 21%, compared with demand over the same period last year.
With late-winter cash prices at key regional hubs like Chicago city-gates, Mich Con city-gate and Northern Ventura up about 85 to 90 cents/MMBtu compared with year-ago levels, generator switching away from gas is likely to blame, at least in part, for the lower power burns.
The effects of fuel switching have been further magnified by higher wind generation, which has also pulled market share away from gas in the Midwest this year. In the Southwest Power Pool – which comprises much of Nebraska, Kansas and Oklahoma, along with parts of Missouri, Arkansas and North Texas – wind power has generated an average 248,500 MWh year to date, compared with an average 205,800 over the same period last year.
In the Southeast, where wind generation is more diluted by other fuel sources, gas-to-coal switching is likely responsible in larger part for this year's declines in power burn demand. Year to date, generator demand for gas there is down about 1 Bcf/d, or about 10%.
In Texas, the declines in power burn demand have been much smaller by comparison – on the order of about 70 MMcf/d, or about 1.6%, Platts Analytics data shows.