07 Dec 2021 | 23:07 UTC
Coal retirements, supply constraints promise upside for gas in MISO this winter
By J Robinson
Highlights
Meramec Unit 3 and 4 retirements total nearly 600 MW
Coal loses generation share in MISO in fourth quarter
MISO gas-fired burns up compared with year-ago levels
Upcoming coal plant retirements in the Midcontinent Independent System Operator, along with supply constraints on the fuel, could boost market share for gas in the ISO's generation stack this winter.
Earlier this year, Ameren Missouri reaffirmed its decision to retire its Meramec Unit 3 and Unit 4 generating stations near St. Louis next year, taking nearly 600 MW of coal-fired capacity offline. According to S&P Global Platts Analytics data, the retirements could come as early as the first quarter.
Ameren's upcoming plant closures add to at least six other retirements in MISO this year which have collectively taken nearly 1 GW of coal-fired capacity offline. Combined, the recent and upcoming capacity changes should boost market share for gas-fired generation in the Midwest this winter.
In November, natural gas accounted for about 32% of total power generation in MISO, compared with roughly 30% for coal. Near parity in the generation stack for the two fuels comes following a strong summer for coal.
From June through September, generation share for coal averaged about 42% in MISO. Over the same period, gas accounted for just 30% of MISO's total power generation, ISO data showed.
Winter outlook
During the upcoming winter months, recent and upcoming capacity changes in the Midwest ISO's generation stack will magnify other downside risks for coal-fired power. This autumn, a drop in US coal production and stockpile levels has already begun to reverse a month-long gas-to-coal switching trend.
In the fourth-quarter, gas-fired power burn in MISO has averaged about 3.3 Bcf/d, outpacing its year-ago average of 3 Bcf/d. The uptick comes despite a more-than-$2.50/MMBtu hike in gas prices over the past 12 months at hubs like the Chicago city-gates.
Gas' recent strength has been supported in part by lagging coal supply.
Fourth quarter to date, weekly US coal production has averaged about 11.3 million short tons – almost 18% below the prior five-year average. Coal stocks are also lagging. As of June 30, US stockpiles were estimated at 115.9 million st, down nearly 35% from the prior year, updated data from the US Energy Information Administration shows.
Gas prices
More recently, falling gas prices have begun putting even more pressure on coal-fired generation.
At the Chicago city-gate, spot gas prices have tumbled over the past week, following the broader US market lower. On Dec. 7, Chicago's cash market ended trading around $3.56/MMBtu – down from late-October highs at over $5.80, S&P Global Platts data showed.
Cheaper prices at the Chicago city-gate and other Midwest hubs are making gas a more viable option for power generators in MISO. Forward-market prices suggest that sub-$4 gas prices could be here to stay.
On Dec. 6, Chicago city-gate's 2022 calendar-year forward curve settled at an average $3.53/MMBtu marking a nearly 75 cents drop over the past five weeks, S&P Global Platts' most recently published M2MS data showed.