Extreme heat across much of the continental US next month could put a strain reserve-generating capacity, potentially driving natural gas-fired power burns to record highs, despite already elevated gas prices.
In an updated month-ahead forecast published June 30, the US National Weather Service warned of a 60%-70% risk for above-average temperatures in parts of the Rocky Mountains, the Pacific Northwest and much of the heavily-populated area of New England. In a broader swath of states including the Desert Southwest, the Northern Plains and the Midwest the risk for hotter-than-average temperatures is slightly lower at 33%-40%, the weather service said.
Already in June, various regions across the US have experienced extreme weather that came in two separate heat waves which pushed temperatures in the Pacific Northwest into the 100s Fahrenheit and New England into the mid-90s F. Both extreme temperature events set new record highs for power burn demand in the month of June, according to data compiled by S&P Global Platts Analytics.
Regional power burns
In the Northeast, regional population-weighted temperatures pushed into the low-80s in early June and then into mid-80s in late June – more than 10 degrees above normal during both events.
In early June, Northeast power burn demand reached 11.4 Bcf/d, setting a new record for the month of June which was subsequently shattered later in the month with another record high at 12.8 Bcf/d.
The more-extreme ongoing heat wave in the Pacific Northwest has lifted the region’s population-weighted temperatures to 90 F and power burn demand to an estimated 1.7 Bcf/d – both single-day record highs dating back to 2005, according to Platts Analytics data.
Blackout risk
In the West, the combination of extreme heat and limited reserve-generating capacity poses the single-largest risk to system reliability on the western power grids this summer – actually outweighing the risk posed by wildfires, California ISO President and CEO Elliot Mainzer said recently.
Mainzer’s warning, made during a June 25 media briefing hosted by the United States Energy Association, comes just days before the weather service released its most recent forecast, expanding the severity and scope for above-average temperatures across the West this July.
While California faces a lower overall risk for extreme weather this month compared to states further north, its Independent System Operator grid remains particularly susceptible to stress during extreme heat, despite improved supply compared to summer 2020 when rotating outages occurred.
This summer, the region is experiencing low hydro conditions due to weak precipitation in the spring months. Combined with the threat of reduced power imports from neighboring regions, California could be left to fend for itself with local generation this summer to meet demand during extreme weather.
Outlook
Historically, heat waves in July and August are typically the most severe of the summer season. As extreme weather and corresponding cooling demand push various region’s reserve-generating capacity to its limit, gas-fired power burns are becoming increasingly price inelastic.
Since late June, Henry Hub spot gas prices have surged nearly 60 cents, rising to around $3.75/MMBtu in recent trading. With more extreme heat likely on its way this month and in August, the possibility that benchmark gas prices could surpass $4/MMBtu this summer now seems increasingly likely.
Source: Platts