Even though it may not feel like it in the Northeast, spring is in full swing and summer is right around the corner. That means the flowers are blooming, my allergies are starting to act up, and the shift from natural gas withdrawals to injections is imminent. Today let’s take a look at what BTU is expecting from natural gas demand this summer. The two things we are watching this summer are new LNG capacity coming online and power burn reaching record levels.
Let’s start off with LNG. The impact that LNG demand has already had on the US natural gas market, and will continue to have, shouldn’t be understated, even as the global LNG market begins to wane, coming off peak winter demand. Cove Point LNG is loading its second cargo, with a third on its way, and is set to start commercial deliveries shortly, while Sabine Pass continues to run strong, sometimes operating above nameplate capacity.
Coming this summer, both the start of Freeport LNG and Elba Island will add more than 1 Bcf/d of incremental LNG export capacity, adding to the strong deliveries off of natural gas pipelines that we are seeing to current facilities. Kinder Morgan’s Elba Island is currently under construction and plans to begin Phase 1 commissioning activities this summer. Meanwhile, the first train of Freeport LNG should begin receiving gas for commissioning activities sometime this summer as well.
Natural gas power burn provides the other source of demand upside this summer. With prices expected to remain weak, especially at regional supply hubs, and about 12 GW of new natural gas fired coal plants expected to begin operations over the next six months, natural gas power burn is poised to reach record levels. The graphic below breaks down how BTU looks at power burn growth over the next year. Newer, more economic plants are expected to make up the bulk of the gains, while gains directly attributed to coal plant retirements will be more muted because retiring coal plants typically run at much lower utilizations than the average plant.
While BTU expects to see record power burn levels this summer, if it weren’t for some notable headwinds, it could have been even higher. The two major sources of demand destruction that will continue to chip away at incremental power burn gains are from the build-out of renewables and increasing power plant efficiencies. On a regional level, the renewables build-out will have a larger impact in the Midcontinent and Midwest, where wind power is surging and setting records while increasing power plant efficiencies will mostly impact regions like the Northeast where new, more efficient power plants are generating the same amount of electricity using less gas.
However, demand is only half the story. What’s happening on the supply side and where will season-ending storage inventories end up? Request a sample of BTU’s Henry Hub Outlook report for US natural gas production, storage inventory, and Henry Hub forecasts.