In By The Numbers for the August 05, 2016, we wrote about an interesting occurrence: a natural gas inventory draw during the middle of summer.
As we noted in the August 5, 2016 Newsletter, U.S. natural gas stocks fell 6 bcf for the week before to 3,288 bcf. This was highly unusual as we are in the middle of injection season so stock should be growing, not shrinking. Normally, we would see an increase this week (based on a five year average) of 54 bcf. In fact, this was the first summertime draw of natural gas in over a decade.
Natural gas consumption patterns are much more seasonal than oil. Demand spikes during the winter due to increased heating needs and then drops. Between March/April and October/November, natural gas inventories typically build as there is simply less demand.
Cumulative U.S. cooling demand is 2% higher so far this year than in 2015 and 11% higher than the long term average.
During the last week of July 2016, a heat wave hit the U.S. resulting in some spike in cooling demand. That heat wave has abated but warmer temperatures were expected to return again during the week of August 8, 2016. Below, you can see the effect that warmer weather is having on air conditioning demand.
However, what is most interesting about this draw is what it says about American power generation, the change from coal to natural gas, and the implications thereof. While natural gas for industrial applications grew about 12% between 2010-2015, natural gas use for power generation grew by over 30%!
Last year, for the first time, natural gas likely overtook king coal to become the King of Power Generation (I would note that there is some debate about whether it actually happened in 2015 or is happening now). In 2015, the United States generated about 4 trillion kilowatthours of electricity. About 67% of the electricity generated was from fossil fuels (coal, natural gas, and petroleum).
Major energy sources and percent share of total U.S. electricity generation in 2015:1
- Coal = 33%
- Natural gas = 33%
- Nuclear = 20%
- Hydropower = 6%
- Other renewables = 7%
- Biomass = 1.6%
- Geothermal = 0.4%
- Solar = 0.6%
- Wind = 4.7%
- Petroleum = 1%
- Other gases = <1%
In 2014, there were about 19,745 individual generators with nameplate generation capacities of at least 1 megawatt (MW) at about 7,677 operational power plants in the United States. A power plant may have one or more generators, and some generators may use more than one type of fuel.
In fact, in 2015 alone, natural gas power generation increased by 19%. Growth in natural gas-fired generation capacity is expected to continue over the next several years, as 18.7 gigawatts (GW) of new capacity comes online between 2016 and 2018. Many of the new natural gas-fired capacity additions in development are near major shale gas plays. The Mid-Atlantic states and Texas have the most natural gas-fired capacity additions under construction with planned online dates within the next three years (2016–18).
Natural gas is becoming so prominent, that power companies seeking to comply with clean air standards are rushing to switch from coal to clean burning natural gas (OK, that might be a shameless plug for our industry). Coal use is expected to have declined by 11% last year.
Ty’s Take. I think this represents an unprecedented opportunity for the United States and our Industry. From an American perspective, this offers us an opportunity to further our energy independence while simultaneously boasting our industry and providing high paying jobs to a lower skill level workforce. And I think it will result in increasing demand growth for natural gas and therefore demand for our products and services. While I could not find exact numbers as of the date of publication, I read many articles about natural gas power plants under construction, and I can only expect this trend to continue.