Natural Gas Fills the Gap
According to an August 23, 2022, report from the U.S. Energy Information Administration (EIA), natural gas is filling an important gap in baseload generation.
In the U.S. lower 48 states, according to the report, electric power generated by natural gas-fired power plants hit three new highs in July 2022 – July 18, July 20, and July 21, with the highest demand ever in history, at 6.37 million megawatthours, on July 21. (The previous high was on July 27, 2020.)
Despite relatively high natural gas prices, demand for natural gas for electricity generation has been strong throughout July as a result of three things: above-normal temperatures, reduced coal-fired electricity generation, and recent natural gas-fired capacity additions.
1 – Temperatures: “U.S. electricity demand usually peaks in the summer because of demand for air conditioning,” said the report. “This past July was especially hot, ranking as the third hottest on record in the United States. Before this year, the previous daily peak for natural gas-fired electricity generation had occurred on July 27, 2020, when natural gas prices were historically low.”
In July 2020, the Henry Hub natural gas price averaged $1.77 per million British thermal units (MMBtu). This July, the natural gas price averaged $7.28/MMBtu, over four times more expensive than in July 2020. Typically, noted the report, higher natural gas prices reduce natural gas price competitiveness relative to other sources, especially coal.
2 – Coal: So what role specifically did coal play in the increased consumption of natural gas? “This summer, coal-fired power plants have not been used as much as in prior summers,” said the EIA. “Continued retirements of coal-fired generating plants, relatively high coal prices, and lower-than-average coal stocks at power plants have limited coal consumption.” In May 2022, coal inventories at power plants averaged 20 percent lower than the prior year levels.
3 – Capacity: The third reason for the increased consumption of natural gas is that new capacity has increased the availability and use of natural gas-fired electricity. “Over the past 10 years, developers have added about 62 gigawatts of combined-cycle gas turbine capacity,” said the report. “The increased number of combined-cycle gas turbines in use has led to efficiency gains and less conversion losses, which means more electricity can be generated from the same amount of natural gas.”