With Coal in Rear View Mirror, Renewables Look to Battle Natural Gas Next for Market Share

Austin, TX (June 11, 2019) – Drillinginfo, the leading energy SaaS and data analytics company, has released Gas Power Burn, an update on fuels used to power America’s domestic electric market. This is an interim report covering the dynamics of the natural gas power demand market in the U.S.

“While no one can predict the future – or the weather – our modeling is projecting a glimpse of how renewables will affect power burn in the U.S.,” said Rob McBride, Senior Director of Market Intelligence at Drillinginfo. “From forecasting out a year in advance, to next-day load forecasts, we’re finding utility operators, power marketers, and other power buyers are tapping machine learning technology to obtain accurate, actionable information. When it comes to load forecasting, accuracy matters,” said McBride.

The report draws from historical data related to time of year, weather, and traditional power use. For example, during the summer months, natural gas demand from the electric power sector makes up a larger share of total domestic gas demand compared to winter. Last summer, power burn represented 49 percent of the total gas demand consumed in the U.S. While winter heating demand from the residential and commercial sectors is very price inelastic due to a lack of substitutes, summer cooling demand from the power sector is price sensitive. Grid operators have the flexibility to respond to changes in the pricing of input fuels by substituting coal and gas for each other. The share of total power generation attributed to gas has been growing over the past several years due to changes in infrastructure, most specifically additions to power plant fleets fueled with gas and added gas transport capacity.

As the report indicates, that could change as a number of wind and solar projects are slated to come online over the next five years. From 2019 to 2020, if all wind and solar projects come online as expected, and run at 100 percent capacity, wind and solar power generation will displace 1.42 Bcf/d of gas demand for power burn.

Regional Power Outlooks:
Retail sales of power differ by region, with some sales being above or below total generation. If retail sales are above total generation, the region needs to import power to meet demand. If retail sales are below total generation, the region has excess power generation and needs to export the excess. Gas Power Burn highlights two prominent regions in the U.S.

Northeast — The grid in the Northeast region is dominated by gas and nuclear. Although some switching capacity remains, coal is mostly gone from the region. Nuclear plants continue to face pressure from low power prices caused by cheap gas and a lack of demand growth. The Pilgrim (MA) nuclear plant is set to retire by June 1, 2019. Following Pilgrim is Indian Point (NY), which may retire unit 2 by May 2020 and unit 3 by May 2021. These three units represent 30 percent of the nuclear capacity in the region. As these units retire and nuclear generation decreases, wind is expected to pick up the generation capacity.

PJM-East — The PJM-East region remains very coal-heavy despite decreasing coal generation and retirements over the past several years. Local coal production makes the fuel more competitive compared to other regions. Over the next 5 years, 43% (14.5 GW) of new gas-fired capacity in the US is expected to be in the PJM-East region. If all announcements come online, this region will add 3.6 GW (or 4%) over the next year, compared to 8.8 GW over the past year. In the next 5 years, it would add 14.5 GW (or a 17% increase from today), compared to 25.3 GW over the past 5 years. With nuclear generation holding steady over the past few years and very little generation from other sources, gas is set to take market share from coal as new plants come online.

Key Takeaways from the Report:

  • The share of total power generation attributed to natural gas has been growing over the past several years due to changes in infrastructure, most specifically additions to power plant fleets fueled with gas and added gas transport capacity.
  • Power burn represents almost 50% of the total gas demand consumed in the U.S. during the summer months.
  • In 2019, demand for power during May-August is expected to average 35.2 Bcf/d. Warmer weather, similar to the summer of 2011, will cause gas demand for power burn to exceed 2018 and reach 36.5 Bcf/d. However, having a cooler summer similar to 2014 will cause weak power burn demand, taking power burn down to 34.0 Bcf/d.
  • End of injection season storage inventories will be greatly impacted by summer weather. Warmer temperatures will cause higher power demand and less gas going into storage, while cooler temperatures will do the opposite. Drillinginfo analysts expect storage inventories to end the injection season between 3.6 Tcf and 3.7 Tcf.
  • Renewables and natural gas continue to increase their shares on the supply stack for electricity generation as coal and nuclear decline. However, some coal-to-gas switching capacity remains, but it is more limited.
  • For natural gas, the battle is now with renewables. With a number of wind and solar projects slated to come online over the next couple of years, natural gas demand could decline by 1.2-1.4 Bcf/d, should all projects come online as expected.

Members of the media can download an 11-page preview of Gas Power Burn or contact Jon Haubert to schedule an interview with one of Drillinginfo’s market analysts.

Drillinginfo: Infrastructure and Exports Will Drive or Hinder the Future of Energy in America

Austin, TX (May 8, 2019) – Drillinginfo, the leading energy SaaS and data analytics company, has released an update on exports as a part of their FundamentalEdge series. The report points to continued production growth of crude oil, natural gas, and NGLs, that outpaces domestic demand, with the supply surplus heading overseas.

“The story on the future of oil and gas in America is becoming clearer. Every incremental barrel of production since the middle of 2016 has been exported. As U.S. crude oil production grows, all incremental barrels are (and will continue to be) exported,” said Bernadette Johnson, Vice President of Market Intelligence at Drillinginfo. “To facilitate this rapid increase in exports, additional infrastructure will be critical. Without it, operators will be stuck with a valuable product, but limited options of how to send it to market,” said Johnson

The report highlights that most of this infrastructure will be built in Houston and Corpus Christi, Texas. Corpus Christi is expected to be the leading point of export moving forward, due to its proximity to the Permian and Eagle Ford basins and being a less congested port. As natural gas production continues to grow faster than domestic demand, more gas is finding a home outside of the U.S. In early 2017, the U.S. became a net exporter of natural gas for the first time. During 2018, net exports reached an average of 2.5 Bcf/d. Over the next five years, Canadian imports and Mexican exports will each represent 5 Bcf/d, netting zero imports/exports. Therefore, the amount of LNG exports will equal the total net exports in the U.S. By 2024, the U.S is expected to net export ~10 Bcf/d of natural gas.

“This will be a busy year, and very telling for the future of the LNG export market,” continued Johnson. Three new facilities are expected to come online — Elba Island, Cameron LNG, and Freeport LNG. Additionally, currently operating terminals will be increasing their capacity with added trains in Sabine Pass and Corpus Christi. Beyond that, there are four projects already approved but not under construction, and many others have been announced. “If recent history has shown us anything, it’s that infrastructure doesn’t always come online as expected, and everyone, both the industry and investors alike, should expect some price volatility while the market balances itself,” she said.

Key Takeaways from the Report:

  • Crude oil exports have been growing since 2017 as U.S. production reached historic levels thanks to growth from prolific shale basins, which in large part produces lighter crude that is better suited for refinery fleets in Asia and Europe. Exports to Asia are finding new destinations as China’s imports have declined to virtually zero. Iranian sanctions by the U.S., the situation in Venezuela, and U.S.-China trade wars will play a big role in U.S. exports moving forward. The U.S. supply growth is likely to be exported rather than displacing currently imported volumes.
  • The LNG liquefaction market is the key player for natural gas exports. By the end of 2019, the U.S. will have six operating terminals and nearly 10 Bcf/d of capacity. Additionally, more than 40 Bcf/d and 20 terminals have been proposed in the U.S. However, Drillinginfo analysts expect U.S. LNG exports to reach 10 Bcf/d in 2023, as growth from non-U.S. LNG export facilities drives global LNG prices down.
  • For NGLs, strong production growth is expected to continue. Export markets will continue to grow, as supply will outpace domestic demand. As additional infrastructure hits the market, ethane, propane, and butanes will grow export volumes. Pentanes plus domestic demand is expected to grow in the short term, due to bottleneck issues and production cuts in Canada.

 

 

 

Members of the media can download a 20-page preview of Growing Exports or contact Jon Haubert to schedule an interview with one of Drillinginfo’s market analysts.