Analysis: US gas demand from power tumbles, snuffed out by cooler weather, rising gas prices

New York — Cooler weather is weighing on generator gas demand in August, just as higher prices for the fuel promise to keep power burn well below the record levels set last month.

In August, gas demand from US power generation is averaging just over 40 Bcf/d, down sharply from a record-high monthly average of 44 Bcf/d in July, data compiled by S&P Global Platts Analytics shows.

Lower gas-fired power burns have accompanied milder weather this month. Over the past 10 days, the US population-weighted temperature has averaged 76.8 degrees Fahrenheit. In July, US temperatures averaged 79.3 degrees, reaching single-day highs at over 81 degrees on three occasions.

Higher gas prices, though, also appear to be having an impact.

Nearly every day in August, temperatures equivalent to ones seen last month have yielded lower power burns. In some instances, hotter single-day temperatures this month have yielded corresponding burns that are still significantly lower.

Data from independent system operators appear to confirm the idea that – at least in some regions – gas is losing market share in the generation stack.

Over the past week, cash prices at the Henry Hub have averaged $2.11, up 40 cents or nearly 25% from a July average at $1.69/MMBtu. On August 10, the benchmark spot index was trading up just a penny from the prior settlement to $2.15/MMBtu, preliminary trade data from S&P Global Platts showed.

Burn per degree

While temperatures in key power burn markets across the Eastern US are notably lower in August, higher gas prices likely explain at least some of the variation in generator demand this month.

Limited burn data collected by Platts Analytics in the first 10 days of August shows sample power demand averaging around 30 Bcf/d at 78 degrees. At the exact same temperatures last month, power burns were averaging closer to 31 Bcf/d.

Recent ISO data from ERCOT suggest that generators in Texas could already be switching away from gas.

In August, gas share in the generation stack has fallen to about 49% -- down from nearly 54% during the final two weeks of July. Over the same period, coal share has edged up to 30% from 26%.

In SPP and PJM, market share for gas is also down this month, although its decline does not appear to be explained by coal switching. In the former, higher wind generation appears to be the main driver.

Outlook

On August 7, January calendar-month forwards at the Henry Hub settled at nearly $3.15/MMBtu or their highest in over three years, S&P Global Platts' most recently published M2MS data shows.

In August, lower output from the Permian, the Eagle Ford and other basins has left total US production in the upper 87 Bcf/d range – nearly flat compared to levels recorded in the final two weeks of July.

Over the same period, US gas demand has continued to rebound, led by LNG feedgas and the industrial sector. While the LNG recovery is expected to progress slowly through first-quarter 2021, recent forecasts from Platts Analytics suggest that LNG export demand could test new record-high levels by later this year.