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Summer Heating Up!

How Much Natural Gas Power Generation Demand Will U.S. See In Weeks Ahead?

June 12, 2015 | By Luke Larsen

This past week a strong westerly flow pattern has allowed warm air to migrate from the Pacific Northwest to the eastern U.S. This has brought unseasonably warm and humid weather from the deep southern areas of Georgia through Virginia and parts north, including much of the heavily populated mid-Atlantic I-95 corridor. This upshot of warm air will translate to multiple days with highs in the 90s for much of the greater southeast and mid-Atlantic regions.

PointLogic Energy estimates real-time, actual gas flows to natural gas-fired power plants providing clients with a first-account, best-of-class understanding of this demand sector. Using proprietary flow and estimation intelligence, and decades of experience, PointLogic can extrapolate the non-transparent and non-disclosed usage factors to get a better understanding of this weather patterns impact on natural gas usage.

Through PointLogic’s recently released Pipeline & Power modules, users are able to track real time natural gas deliveries to several hundred power plants around the country offering trend analysis, plant specifics as well as multiple sources of other relevant data.

PointLogic Energy Data Suite Power Module

Currently, PointLogic’s analysis team has projected out cumulative power plant consumption through each day’s gas flows this month. The chart below depicts total U.S. Lower 48 usage of natural gas for electric power generation.

PointLogic Energy Estimated Power Demand June 2015

What is up Next?

As we reach the midway point of June, those in the North American natural gas industry look towards the impending summer heat or lack there-of, to determine the amount of power generation demand that will transcend across the lower 48 over the course of the very warmest weeks. Despite the traditional arrival of the summer solstice, on Sunday, June 21st, warmer conditions resulting from this natural occurrence generally don’t arrive until a month or two later. This “lag of seasons” is the process of warming both land and water areas as the sun reaches its peak intensity over North America and slowly transitions back towards the autumnal equinox.

Subsequently, solar heating becomes much more efficient during this period; the temperature increase after the solstice occurs because the rate of heat input from the sun during the day continues to be greater than the cooling at night for several weeks, until temperatures start to decline in late July and early August.

Warmest Day of the Year

As North America and the continental U.S. move into historically warmer periods it really comes down to what the weather will be in select areas of the country. The latest forecast from NOAA suggests that the current, strong warming pattern over the Mid-Atlantic and Southeast earlier this week has a good chance of locking in for a longer period of time. Per the diagnostic discussion from NOAA’s Climate Prediction Center, the heat ridge over the southeastern continental U.S. is set to bring above normal readings through the end of June. However, the strength of this subtropical ridge is brought into question between the European and Canadian models which indicate a stronger grip over this area. This collision of inexact information red flags a higher level of uncertainty for this particular forecast and ultimately will weigh heavily on the amount of generation that will be needed during this time.

In this week’s edition of Get the Point, we take a look at the amount of power generation seen over the past couple of days and forecast that information out over the balance of June. This forecast will then be incorporated into the current supply and demand picture.

NOAA 8-14 Day Weather Outlook

In order to get a better understanding of what the above map means from a pure Cooling Degree Day (CDD) standpoint with daily resolution, the following chart shows the forecasts for a regional 30 city dataset covering Energy Information Administration (EIA) storage regions. As seen below, expectations are for significantly above-normal temperatures for much of the remainder of the month with a notion that the U.S. will slip back below-normal as July comes to pass.

30 U.S. City Cooling Degree Day Forecast for June 2015 vs Climate Normals

The U.S. is currently one-third of the way through June and earlier natural gas demand from the power generation sector has shot up significantly this past week nearing 31 Bcf/d on Wednesday, June 10. This recent run of the first twelve days of power generation burn in June 2015 compared to the infamous summer of 2012 reveals higher instances of power burn and a systemic shift of natural gas-fired power being used as a base-load generation source. To provide some historical perspective, the below graph highlights power burn in April and May, juxtaposing 2012 levels versus 2015.

Power Generation: April & May 2012 vs 2015

Late this past winter and continuing into the early months this spring, analytic brain trusts across the natural gas community have anticipated that peak summer power burn months in 2015 could exceed burn levels seen in 2012. However, per the charts above, early results show that 2015 has some serious work ahead.

However, considering the shoulder seasons’ weather mundaneness for these two months gives us the ability to make the assessment that the heavy burn rates in 2012 were actually the result of an early season arbitrage that was offered to flexible or fuel switching generators to leg out of a significant portion of their coal purchase obligations and buy back the natural gas replacement at a huge discount - locking in a base loaded value and thereby layering an underlying additional demand to the market that would last the entire summer.

So with that being understood the summer of 2015 should indeed lag behind the summer of 2012 during the earlier months and this has been confirmed above with what appears to be at least a 2 Bcf/d differential due to the reason laid out above.

So the next true hope for the proponents of making summer 2015 comparable to 2012 is for weather to HEAT UP and to do it NOW!

June; A New Month

Shifting attention to the month of June, out of the first twelve days in June 2015, eight of those days have eclipsed June 2012 burn levels. As Lloyd Christmas would say, “so you’re telling me there’s a chance!” – especially as the U.S. prepares to enter the second half of June with even warmer conditions expected in forward weather forecasts.

Early June Gas-Fired Power Demand

June 2015 is still slightly behind June 2012 with a month to date average of 26.7Bcf/d compared to the 27.0 Bcf/d over the same period in June 2012. Burn levels seen over the last couple of days if maintained could indeed push the June 2015 month end average above June 2012. Below is a forecast for the balance of the month of June 2015.

Power Demand Balance of June

PointLogic Energy put this together using a regression formula which weights pure temperature data, suggesting that a populated weighted temperature variable will send us well above any previous record daily power burn numbers for the U.S before entering the last week of June. Reviewing the PointLogic Gas Power Plant Historical Database shows that record daily Power Burn occurred on July 25, 2012 as deliveries topped 38 Bcf/d.

If this June forecast above comes to reality, it will put the monthly average burn rate at 29.52 Bcf/d thereby nudging slightly ahead of June 2012, which was a record for any June ever, at 29.44 Bcf/d. The aforementioned forecasted level would be more than 1 Bcf/d above the EIA’s most recent forecast for electric power burn demand for the month which was published on June 9 with an estimate of 28.36 Bcf/d.

Yet as mentioned earlier, after the summer solstice it takes several weeks to roll off before achieving peak temperatures. This additional time is necessary to allow for seasonal vegetation maturation thereby reducing the amount of overnight cooling moisture and ultimately allows daytime temperatures to soar much higher amid drier conditions. So to estimate a new generation record that is timed around the expiration of the July NYMEX contract is a significant bullish statement indeed, but one that could come to reality provided that current weather forecasts hold and power burn follows its natural regression through the end of the month.

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