(John Kemp is a Reuters market analyst. The views expressed are his own)
* Chartbook: tmsnrt.rs/31vFZGU
By John Kemp
LONDON, Feb 6 (Reuters) - Ultra-low natural gas prices and a milder-than-normal winter are pushing coal-fired power generators to the margins of the U.S. electricity system, adding to their financial losses and accelerating the prospect of closure.
Coal-fired power plants supplied just 18% of all electricity generated across the lower 48 states in the seven days ending on Feb. 4, down from more than 28% in the corresponding period of 2019.
Coal units generated an average of 1,852 gigawatt-hours (GWh) per day over the seven days ending Feb. 4, down from 3,210 GWh in the same period last year, according to data from the U.S. Energy Information Administration.
Coal's share of generation has continued to trend lower over the last year as more plants close permanently and the rest of the fleet operates for fewer hours (tmsnrt.rs/31vFZGU).
Coal is being pushed out by newly commissioned gas-fired generation units, while gas prices at multi-year lows incentivise new and existing plants to maximise their running time and output.
Gas units supplied more than 38% of all power fed into the grid over the last seven days, up from less than 31% at the same time last year (“Hourly electric grid monitor”, EIA, Feb. 6).
Gas generators – including gas turbines, steam turbines and combined-cycle units – produced an average of 3,941 GWh per day in the last week, up from 3,449 GWh in the corresponding period last year.
Ferocious gas-on-coal competition has been intensified by the warmer-than-normal weather over the most populated areas of the country from late November and especially since Christmas.
Total heating demand for the conterminous United States, as measured by the number of population-weighted heating degree days, has been 9% below the long-term average so far during the 2019/20 heating season.
The current heating season is so far the mildest for three years, according to degree-day data from the Climate Prediction Center at the U.S. National Atmospheric and Oceanic Administration.
Mild weather has reduced direct gas consumption, boosting the amount available for power producers, while cutting electricity demand, leaving generators fighting to supply a diminished number of megawatt-hours.
As total power consumption has fallen, and gas generators have increased their hours, coal units have been relegated to the sidelines, with already-low utilisation rates tumbling even further.
In the short term, the outlook for coal generation depends on temperatures: a colder finish to the winter or an unusually hot summer could provide a temporary reprieve, allowing them to boost generation hours.
In the medium run, the outlook for coal units depends on a cyclical upturn in gas prices, which would make existing coal units more competitive again, though probably not enough to encourage retired units to reopen.
U.S. natural gas production was still growing at a year-on-year rate of almost 9% in the three months between September and November, according to data from the EIA.
But year-on-year growth has already decelerated from more than 13% in late 2018 and the rate is expected to turn negative before the end of 2020 (“Short-Term Energy Outlook”, EIA, Jan. 14).
Ultra-low prices are resulting in reduced gas drilling which will in turn filter through into slower production growth or even output declines this year.
The number of rigs drilling for gas has fallen by almost 45% since early 2019, according to oil and gas services company Baker Hughes.
Much of the country’s gas production actually comes from oil wells, so the 24% reduction in the number of active rigs targeting oil since late 2018 should also slow output growth.
As a result, the gas production-consumption balance is likely to tighten significantly later in the year if gas prices and drilling remain low in the meantime.
An eventual rise in gas prices, or a very hot summer, could provide a lifeline for some remaining coal plants – but for many it will already be too late.
- Plunging U.S. gas prices intensify squeeze on coal (Reuters, Jan. 21)
- U.S. oil and gas boom tamed by sharply lower prices (Reuters, Jan. 17)
- Mild winter sends U.S. natural gas prices tumbling (Reuters, Jan. 10) (Editing by David Evans)