Natural Gas Usage Flattening Out a Bit

With the continuing reduction in the use of coal-fired generation for electric utility plants, the shortfall has, in recent years, been picked up primarily by renewable generation (most commonly solar and wind) and by natural gas.

According to the U.S. Energy Information Administration (EIA), natural gas-fired generation capacity has continued to increase with the ongoing retirement of coal-fired generation capacity. Despite relatively high natural gas prices, natural gas accounted for 37 percent of all power generation in 2021, which was nearly equal to the combined shares of the next two largest sources – coal and nuclear. “Historically, low coal inventories at power plants have limited coal-fired electricity generation in summer and early fall, which, in turn, could have also pushed natural gas prices higher,” said the EIA.

However, according to EIA’s recently-released “Natural Gas Annual,” U.S. natural gas consumption reached a record 85.3 Bcf/d (billion cubic feet per day) in 2019, and has been declining or remaining flat every year since then. Most recently, natural gas consumption in all sectors in the United States was effectively flat between 2020 and 2021.

Reasons? “Reduced economic activity during the COVID-19 pandemic reduced natural gas consumption in key demand sectors,” said the EIA. “In specific, the decline in natural gas used in the electric power sector, the largest U.S. natural gas-consuming sector, drove the total decline, falling by three percent in 2021 and reversing four years of annual growth in the sector.”

The report added that U.S. natural gas consumption rose slightly or remained flat in all other key sectors. In 2021, consumption by both the commercial and industrial sectors rose by only 0.2 Bcf/d, and residential natural gas consumption remained flat.

In 2021, high natural gas prices made natural gas a less competitive fuel, particularly compared with coal. “Coal prices for electricity generators remained relatively stable in 2021,” said the EIA. “The wholesale spot price for natural gas at the Henry Hub benchmark in Louisiana nearly doubled from 2020 to 2021, rising to average $3.89 per million British thermal units.”

In addition, U.S. natural gas prices rose throughout 2021 because of tighter supply and demand balances, low inventories, and weather-related consumption limitations and production outages. High natural gas prices in global markets also encouraged natural gas exports. In 2021, the United States exported 30 percent more natural gas compared with 2020.

The future may be a bit brighter for natural gas, though. “We expect annual natural gas-fired generation to increase by 5 percent in 2022 because of constraints in alternative sources of generation, which is partly the result of rapidly rising coal prices,” said the EIA. “We expect total U.S. natural gas consumption to rise by about 5 percent in 2022, a result of more natural gas consumption across almost all sectors.”


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