Texas power burn records likely to extend into summer on low gas prices

Natural gas-fired power burn demand will likely see another record-setting summer in Texas this year as historically low gas prices sustain an ongoing wave of coal-to-gas switching in the state.

In Texas, gas demand from power generators is already trending at a record high this spring. Month to date, modeled power burn in Texas has averaged nearly 4.3 Bcf/d, outpacing the three-year average of 3.6 Bcf/d by a wide margin. Even compared with last April, power burns are up nearly 470 MMcf/d, or about 12%, so far this month, data from S&P Global Commodity Insights showed.

Stronger demand for gas-fired power in Texas this spring is hardly a recent trend. Jan. 1 to date, Texas power burn has consistently outperformed this year compared with 2023.

Using a simple scatterplot of population-weighted temperatures and sample power burn data, it's clear that the annual trend curve for 2024 shows consistently higher gas demand from generators compared with 2023 – regardless of the temperature. For example, at 40 degrees Fahrenheit, the S&P Global sample of Texas power generators has on average burned about 250 MMcf/d more gas this year than in 2023. At 60 degrees, marginal demand is up about 300 MMcf/d this year compared with last, S&P Global data showed. Modeled up data, which estimates actual statewide power burn, would undoubtedly show an even larger effect.

Although many factors could be at play, low gas prices are certainly a key factor.

According to Eli Rubin, senior energy analyst with EBW Analytics, the factors influencing gas-fired power demand are numerous and complex. Output from wind and solar power generators, and countless other factors make it difficult to accurately isolate the impact of low gas prices on coal-to-gas switching. Rubin, along with other analysts at his firm, however, have developed a proprietary model that estimates just that. According to the group's current estimates, low gas prices are currently driving about 5 Bcf/d of coal displacement at the US level.

Gas prices

In Texas, bargain prices for gas this year have undoubtedly piqued generators' interest in the fuel – especially in East Texas where prices have fallen to historic lows in recent trading.

At Houston Ship Channel, the spot gas price has averaged just under $1.80/MMBtu in 2024. In April, prices have so far averaged less than $1. Farther east at Florida Gas Zone 1, the year-to-date cash average around $2.15/MMBtu looks nearly as compelling for generators. In April, the Florida Gas hub is now averaging under $1.20, Platts assessments show. Platts is a part of S&P Global Commodity Insights.

In addition to low gas prices, another hot summer in Texas could lift overall power demand to new record highs this season. Even as wind and solar capture an increasing share of overall power demand on the ERCOT grid, it's possible that gas-fired generation will also rise this summer to meet cooling demand.

Weather

According to a recent seasonal forecast published by the US National Weather Service, the Lone Star State is likely to see temperatures trending warmer than normal this summer. During the hottest months from June to August, the vast majority of Texas residents are looking at a 50%-60% probably for above-average temperatures. In the northeast corner of the state, the probability is only slightly lower at about 40%-50%, temperature data published by the Weather Service showed.