Recently, Direct Energy released a forecasting report that provides information on both natural gas and electricity within the United States markets. It focuses on defining many different trends, most of them current, to help the public better understand the effects of certain economic factors or trends on natural gas and electricity. The report focuses on comparing collected and forecasted energy related data from 2015 to 2017 (and in some cases beyond) to better illustrate the changes or differences in the market from year to year.
The information collected by Direct Energy is available publicly as it is information analyzed by the Energy Information Administration (EIA) as well as the Natural Gas Supply Association (and a few other data collection groups). It’s the hope of all parties that the analysis will help businesses, organizations and residents become aware of the areas of fluctuations in the market in order to better prepare people for what to expect from the energy market in the near future.
Natural Gas in the United States
- As far as demand months go, May is usually low. However, in 2016 there was a 4.2 bcf per day surplus.
- The largest increase in demand can be found in the Commercial/Residential sector and the reason is due to colder winter temperatures over the past 5 years.
- The second highest sector for demand was the Power sector. This increase was caused by power plant improvements and lower gas rates.
- Overall supplies were down 1.1 bcf per day due to lower domestic production factors.
- Prices were a bit lower in May. However by June 1st they rebounded back to previous levels because of an increase in Power sector demand during that time.
- A supply and demand balance shift of 4 bcf per day or greater might mean that summer prices stay above $2.50. This is due to the fact that a net gain of over 4 bcf per day would invalidate almost all surplus gas available due to the end of May surplus.
How Does this Affect U.S. Gas Production?
The United States Northeast gas production outside of the Northeast is 4bcf per day lower because of regional prices that support sustainable Return on Investments (ROIs). A 9% drop (from June 2015 peak) in oil production also lends a hand in the decreased production of gas caused by the $50 per bbl and lower rates that cut into those same ROIs. The good news is that the Northeast still supports a year over year surplus of almost 3 bcf per day. It is also important to note that extraction in the Northeast is the cheapest in the United States. This means that producers in that area have a better chance of locking in their ROI.
Other affects that gas production will have on the U.S. include:
- Less gas is needed to move from southern United States. to northern United States when demand peaks in the north.
- When the demands are lower, the U.S. export capacity in areas of the mid-continent and Gulf Coast is significantly higher.
- Increasing “backhaul” capacity means that large changes in the production of gas in the northeast have a huge impact on the rates in regions like the mid-continent and Henry Hub.
What all this means is that 2016 could be the last year of the massive year over year production surplus that parts of the northeastern United States has seen. This impact could last between 2-3 years, provided there is no upward shift in the forward price curve or improvements made regarding export capacity out of the area.
How does this Affect U.S. Gas Demand?
According to the report, there are several factors that have an impact or affect on the United States Gas Demand including,
- The total United States demand was 4.2 bcf per day higher in May (month to date, year over year) and 5.6 for the first two days in June with a 7 bcf per day. The increase comes from the Power sector demand.
- The cause of this giant increase in demand is primarily due to higher than average temperatures throughout the two day period. These temperatures may have generated a kind of signal or indicators of the potential demand that can happen within the sector (if the remaining summer months prove to be just as hot).
- 4.1 bcf per day for the 2016 summer months shows a demand increase, with power generation owning 3.1 of that amount (determined by the Natural Gas Supply Association).
- 1.7 bcf per day year over year power sector summer increase is what the Energy Information Administration (EIA) forecasts for 2016.
Overall, the report determines that the power generation sector will continue to support or drive gas prices higher during the summer months this year.
U.S. Gas Prices and Rates
The above information means a few things for the price of gas within the United States. The report states that from 2017 to 2021, the rates of gas will stay between $2.50 and $3.50 in the month of June. If the temperatures in the summer months (July to August) become unusually hot, there could be a surge above the $2.50 amount. This means that between November 2016 and March 17 winter months, the price of gas could go up to at least $3.50 or more.
Electricity in the United States
- The cost of wholesale electricity from October to March of 2015 – 2016 were much lower compared to the same period of time in 2014 – 2015.
- The average of day-ahead peak power prices came in at an average of $35 per MWh during the 2015 – 2016 winter months for independent system operators (ISOs) in New England. This market was 52% below the average peak price during the previous period.
- This above is compared to the Electricity Reliability Council of Texas (ERCOT) ISO, whose top wholesale prices averaged at $21 per MWh during the 2015 – 2016 months. Texas has milder winter temperatures, which helps to keep the price of wholesale electricity low.
How Does this Affect U.S. Electricity Consumption?
The temperatures for the summer months of 2016 within the United States are expected to be close to the same period of 2015, only 3% higher. Of course, regional differences in temperature are still expected and anticipated. For example, Pacific states in the summer of this year are expected to be 11% lower than last year. East North Central states are estimated to be 12% higher compared to last year.
The differences between different regions has helped to develop the 1.5% summer over summer increase in commercial electricity sales.
How Does this Affect U.S. Electricity Generation?
According to the report, the total United States electricity generation for the year, 2016 is predicted to reach 11.2 terrawatthours per day. This amount is slightly under the total amount generated the previous year. That being said, the forecast total United States electricity generation is estimated to increase by 1.6% next year.
Natural gas will generate approximately 34% of the country’s total electricity this year, which is a 32.7% increase from 2015. However, the estimated share of coal-fired electricity generation is approximately 30.5% this year, which is slightly less than last year. 2016 is the first year that natural gas electricity generation exceeds coal. In 2017, coal is actually expected to regain some of its share as natural gas prices are estimated to rise. However, the forecasted share of coal generation is 31.4% in 2017, which is still below natural gas generation at 32.9%.
U.S Electricity Prices and Rates
Estimates from EIA show that the United States is expected to see prices of electricity (residential sector) reach an average of 12.9 cents per kWh. New England will see 18.5 cents (highest price) and East South Central will see the lowest price. In 2015, the United States (residential) electricity price averaged 12.7 cents per kWh. That price is expected to drop by 0.7% to 12.6 cents per kWh this year, and then rise 2.4% to 12.9 cents per kWh for 2017.
U.S Renewable Electricity & Heat Generation
The EIA determined several interesting facts in their report including:
- Total renewables used in the electric power sector is estimated to increase by 11.3% this year, and 4.4% next year.
- Hydropower is estimated to increase by 9.1% in the electric power sector this year, but then fall by 0.6% next year.
- Other renewable electricity generation is estimated to grow by 13.3% this year, and 8.6% next year.
- From 2015 – 2017, utility-scale solar photovoltaic capacity will increase over 13 gigawatts. There are several states leading in this area including, Georgia, Texas, North Carolina, Nevada and California.
- Wind electric power grew about 12% last year. It is estimated to see an increase of 9% this year and another 10% in 2017.
Coal in the U.S
In April, the estimate of the United States coal production was 46 million tons short. This is a 12% decrease from March, and is 38% lower than production in April of last year. In fact, coal production is going to decrease by 17% in 2016. This is the largest decrease in both amount and percentage since 1949 (when data collection started).
The electric power sector makes up for more than 90% of the total United States coal consumption. This sector is estimated to decline by 8% this year. This forecasted is the result of the low cost of natural gas as well as the increase in temperature during the winter season. Coal consumption is estimated to increase by 4% next year due to rising natural gas rates.
Additional impacts of coal within the United States affect trade. These impacts include,
- Both the slower growth in the global demand for coal and a decrease in international prices are related to the decline in coal exports in the United States.
- The export of coal in February of this year was up 2% from the previous month. However, it was still 31% lower than the amount exported in the same month for the previous year.
- An estimate of delivered coal price was approximately $2.23 per MMBtu in 2015. It is estimated that this year the price lowers to $2.18 per MMBtu, and in 2017: $2.21 MMBtu.
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