Record Highs for Gas-Fired Electricity Generation in the US
Gas-Fired Generation Hits Record High
The United States has seen gas-fired electricity generation reach a record high, driven by exceptionally low gas prices. These low prices have helped to eliminate most of the surplus inventories from the mild winter of 2023/24. According to data from the U.S. Energy Information Administration (EIA), US electricity generators produced a record 2,069 billion kilowatt-hours (kWh) in the first half of 2024, a 5% increase compared to the same period in the previous year.
Energy Sources for Increased Electricity Production
The majority of this extra electricity came from gas-fired units, solar parks, and wind farms, with smaller contributions from nuclear and coal. Gas-fired units produced a record 857 billion kWh, accounting for 41% of all generation, a record high. As a result, gas generators consumed a record 6,264 billion cubic feet (bcf) of fuel, an increase of 314 bcf compared to 2023.
Impact of Low Gas Costs
The boom in gas generation has been fueled by extraordinarily low gas prices, which declined to their lowest in over five decades in March, after adjusting for inflation. This allowed gas generators to run for longer hours, including less-efficient single-cycle gas turbines and steam units, which typically only operate during peak demand periods.
Gas vs. Coal
Gas units gained market share from coal-fired generators as gas costs dipped below coal on an energy-contained basis between March and May, a phenomenon not seen since 1975. On average, gas generators are more efficient, requiring fewer British thermal units of fuel to produce each kilowatt-hour of electricity compared to coal generators. As a result, gas units can compete with coal even when gas prices are 30-40% higher. However, between March and May, gas was 10-20% cheaper, providing a significant financial incentive to switch to gas.
Summer Demand Peak
Gas generators have continued to produce record amounts of electricity since the start of the third quarter, primarily at the expense of coal. In the Lower 48 states, gas units generated a record 540 billion kWh between July and September, up from 525 billion kWh in the same period in 2023. This increase in gas generation occurred despite total electricity production remaining broadly flat compared to the previous year.
Inventory Normalization
The surge in gas generation, coupled with slower gas production and an increase in liquefied natural gas (LNG) exports, has helped to eliminate most of the surplus fuel from last winter. Working gas stocks in underground storage saw only a small increase over the summer quarter, the smallest seasonal increase since at least 2010, and 45% less than the average for the last decade.
Gas Prices on the Rise
As the surplus has eroded, gas prices have begun to climb gradually. Front-month futures prices have averaged $2.80 per million British thermal units so far in October, up from a low of $1.75 in March. However, futures are still below the inflation-adjusted averages of previous years and barely above the cost of coal. Gas generation is likely to continue setting record highs unless futures prices climb above $3.00-3.25 on a sustained basis.
Bottom Line
The record highs in gas-fired electricity generation in the United States highlight the significant impact of low gas prices on the energy market. It also underscores the increasing efficiency and competitiveness of gas units compared to other energy sources such as coal. However, with gas prices on the rise, it remains to be seen if this trend will continue. What are your thoughts on this development in the energy sector? Feel free to share this article with your friends and discuss. Don't forget to sign up for the Daily Briefing, which is delivered every day at 6pm.
