US Weather Service forecast places gas generators on deck for record summer demand

Strong points

Lower 48 states with 33-40% risk for warmer temperatures

Heat risk highest for Northeast, Texas and West

Coal production constrained by capacity, supply

U.S. gas-fired electric generators could experience a record season for cooling demand this summer, if an updated seasonal forecast from the National Weather Service proves accurate.

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Growing constraints on coal production make this outcome even more likely.

In July, August and September, all of the lower 48 states face a minimum risk of 33 to 40 percent above-average temperatures, according to the June 16 seasonal temperature forecast released by the weather agency. The risk of warmer weather has been predicted at a low of 50% up to 70% in parts of the Rockies, the desert southwest, Texas, and the northeast Atlantic coast.

A weather-normal power consumption forecast from Platts Analytics already predicted the strongest demand this summer since 2020, when low prices fueled a record season for gas generators.

During the hottest months of this summer, from June to August, electricity consumption in the United States is expected to average more than 39 billion cubic feet per day, exceeding demand in the summer of 2021, but just below the record 2020 average of 40.3 billion cubic feet per day.

Warmer-than-usual weather, which looks almost certain to impact parts of the West and Northeast, could easily tip the scales, making this season a record high for gas production. According to data from Platts Analytics, the Northeast and Southwest together accounted for more than 35% of total electricity consumption in the United States in recent summers. For this reason, the warmer weather in both regions could have an outsized impact this year.

Since the start of the month, gas-fired power generation in the northeast has averaged more than 9.3 billion cubic feet per day, already setting a new record for the first half of June. In the Southwest, electricity consumptions have averaged around 3.35 bcf/d so far in June, lagging the monthly averages of last year and 2020 to rank as the third hottest June start, according to data from Platts Analytics.

Coal constraints

Growing constraints on coal production in the United States could exacerbate the risks posed by abnormally hot summer temperatures.

In the past 12 months, power producers have retired more than 11.2 GW of coal capacity in the United States. As older plants are replaced with natural gas and renewables, the ability of generators to simply switch thermal fuel sources in response to high gas prices continues to be further compromised.

Record coal prices may be another constraint. In June, the price of central Appalachian thermal coal averaged a record high of $156.55/st, according to Platts valuations dating back to 2005. Again this week, CAPP coal prices approached the record high of one day at $160.60/st recorded in July 2008.

If soaring coal prices weren’t enough to discourage power producers, additional supply constraints could be.

From January to May, U.S. coal exports are expected to reach 17.4 million tonnes, up 11.5% on the year and the highest total volume for the period since 2018, according to Platts Analytics data. .

Coal production and inventories in the United States, meanwhile, have fallen sharply in 2022.

In the first week of June, national production averaged 11.2 million tonnes, continuing to track historical levels at only 88% of the average production of the previous five years. At the end of the fourth quarter of 2021, US coal inventories also remained depressed, rising slightly from the third quarter to 99.1 million sts, but still at their lowest level dating back to at least 2015, according to data from the US Energy Information Administration.

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