Gas demand from the US power sector has been coming down from peak summer levels as the heat wave gradually abates, ending the need to tap gas storage. Analysts at Energy Aspects see gas burns for power over the two-week period ending August 12 averaging around 37.5 bcf/d, up by a modest 0.7 bcf/d year-on-year.
Very hot weather in the South Central US had caused power generation to soar last week, with gas burns in the power sector averaging a massive 44.3 bcf/d, higher by 7.5 bcf/d y/y.
“Our balances suggest that the huge thirst for gas in the power sector helped drive demand higher than supply last week, thus triggering the unseasonal need for a net stockdraw,” analysts led by Trevor Sikorski said with reference to 38 bcf of injection into US storage last year over the same period. Actual storage injection levels last week were just 17 bcf, lower than the 22 bcf injection that analysts anticipated.
Temperatures are now trending back toward normal in the lower-48 states, and the Northeast is seeing some colder-than-average temperature on August 8-9. The Southeast and Southwest is forecast to face hotter than average weather, while the West is set to be cooler than normal over most of the next two weeks. As a result, gas-burn from the power sector is coming down.
With Henry Hub cash is trading close to 2.79 $/mmbtu, prices are expected to remain below the next fuel switching trigger of 2.93 $/mmbtu (6,800 gas vs 10,650 coal) – at which level more gas will be pushed out of merit by coal.
The next major fuel switching level to the downside would be around 2.48 $/mmbtu (7,500 gas vs 10,000 coal), according to Energy Aspects analysis.