Denver — Low natural gas prices in the Midwest have helped boost gas-fired generation in the region this year and could lead to even greater coal-to-gas switching during the peak summer months of July and August.
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Total electricity loads across the Midcontinent Independent System Operator shows coal has dropped by 9 average GW year on year while gas-fired generation has increased by 0.6 average GW year on year, according to MISO data.
In fact, gas as a percentage of thermal loads is averaging 45% month to date in June, or nearly 10% higher year on year. For the summer in general, gas as a percentage of thermal loads are averaging 46%, or roughly 6%, higher year on year.
Looking ahead, seasonally expanding loads should help drive gas burns higher. Notably, relative to June's month-to-date average, S&P Global Platts Analytics forecasts total loads within MISO will average about 90 average GW and total gas generation will be 25.7 average GW, up 18% and 14%, respectively.
Based on Platts Analytics reference prices, gas as a percentage of thermal loads is forecast to average 42% for the peak summer months of July and August, 3% higher than last year. But the recent selloff in both Henry Hub and regional gas hub prices will likely stimulate higher than expected levels of coal-to-gas switching. This would allow gas to take more incremental market share than previously expected.
Regarding switching, with Chicago city-gates pricing below $2.15/MMBtu over the next few months, gas is much more economical relative to coal across MISO's North and Central regions. Looking at delivered coal costs to the region, and adjusting for a gas-fired combined-cycle power plant heat rate advantage, gas is trading at more than a 25% discount to the price level over a coal-fired power plant.
Because of this pricing advantage, Platts Analytics sees MISO adding anywhere from 300 MMcf/d to 400 MMcf/d of more-than-expected gas-fired generation over the peak months of July and August.
Part of the higher gas-fired generation stems from a wave of coal plant closures. Nearly 10 GW of coal generation has retired since 2015 while more than 2 GW of gas generation has come online in the Midwest over the same period. Platts Analytics' expects another 2 GW of coal retirements by the end of 2019 combined with 2 GW of new gas-fired generation online by year's end.
The coal retirements played a significant role in the Midwest reaching record-high levels of gas-fired generation last winter. In January, Midwest power burn averaged 3.2 Bcf/d, reaching a single-day, all-time high of 3.9 Bcf/d, according to Platts Analytics. This record occurred despite the Chicago city-gates averaging more than $3/MMBtu for the month.
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