Rallying prices at the Henry Hub have lifted the peak-summer forward strip nearly 15% over the past three weeks in a move that could prove bearish for gas-fired power burns this summer.
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Late last week, calendar-month prices for the June-July-August strip briefly topped $3 before settling to an average $2.97/MMBtu on April 30, S&P Global Platts' most recently published M2MS data shows.
Bullishness in the forward market has accompanied an even steeper rise in cash prices.
At mid-session May 3, Henry Hub spot gas was trading around $2.93/MMBtu – up 56 cents or nearly 24% since early April, according to data from the Intercontinental Exchange.
This winter, higher gas prices already put a damper on generator gas demand. From December to March, power burn averaged just 27.8 Bcf/d this season. Last winter, burns were about 6% higher, averaging 29.4 Bcf/d over the same period, S&P Global Platts Analytics data shows.
Absent a compensatory rise in temperatures and baseload cooling demand this summer, the ongoing wave of gas-to-coal switching will likely see gas burns underperform again compared with comparable 2020 levels.
In every major independent system operator where coal is used, its market share in the generation stack is up this year compared to last; in the same ISO territories, market share for gas is also lower.
The largest shift in generation share has occurred in MISO, where coal has gained 10 percentage points in the stack to capture almost 39% of total electric power demand in 2021. Year to date, market share for gas is down almost 9%, accounting for roughly 27% of total generation, Platts Analytics data shows.
In PJM, SPP and ERCOT, the trend has been similar this year, though less pronounced.
At the US level, the data on gas-fired power burn demand is reflective of the trend. Year-to-date, generator demand for gas has averaged 27 Bcf/d – down about 5% from an average 28.5 Bcf/d in 2020.
Assuming benchmark gas prices remain near the $3 level, last summer's June-July-August burn average of 40.3 Bcf/d, could be expected to fall sharply over the same peak-summer period in 2021. Even prior to the recent rally in forwards prices, Platts Analytics had forecast power burn demand this summer to significantly undershoot 2020's record level, averaging 37.7 Bcf/d from June to August 2021.
Hotter weather this summer, which would likely increase total baseload power generation for cooling, could be an offsetting factor that helps to mitigate the anticipated decline in power burn demand.
In a 30-day forecast revised late last week, the National Weather Service said that it's anticipating above-average temperatures in May across the southern two-thirds of the continental US, stretching from California to Maryland. The forecast echoes an earlier seasonal forecast for summer 2021, published in mid-April. According to that forecast, the entire US faces a 40% to 50% upside-risk for hotter temperatures in June, July and August