Record-high Texas, Midcontinent heat to elevate power demand, gas prices

Natural gas-fired power demand and regional spot gas prices should remain elevated in the near term as record-breaking heat is expected across Texas and the Midcontinent though May 20.

The National Weather Service predicted that much of north-central Texas, Oklahoma and the Central Plains will see highs in the 90s and 100s Fahrenheit, around 20-30 degrees above normal, which will likely tie or break existing records for this time of year.

In Texas, Houston Ship Channel spot gas climbed to $8.195/MMBtu in May 18 trading for next-day flows, according to preliminary settlement data, up around 50 cents from just two days earlier on May 16. Cash Houston Ship Channel has averaged $7.60/MMBtu so far this May, more than double the $2.95/MMBtu averaged during the same time last year.

Looking north to the Central Plains, cash NGPL, Midcontinent, reached $7.965/MMBtu at preliminary settlement May 18, up nearly 40 cents from the start of the trading week on May 16.

Gas-fired power demand

The heat wave is set to further elevate gas-fired power demand, which has already outpaced year-ago levels so far this May.

Gas-fired power demand in the Central region has averaged 3.8 Bcf/d so far this May, up 1.3 Bcf/d from the same time last year.

Texas gas-fired power demand has averaged 4.4 Bcf/d month to date, up around 200 MMcf, or 5%, from the same time last year. With the state's average temperature set to come in 7-8 degrees above normal, S&P Global projected gas demand for power generation to increase around 350 MMcf to average 4.75 Bcf/d for May 18-20.

Although gas-fired generation has increased in Texas to cope with elevated cooling demand, the high pricing environment for gas has likely helped direct the bulk of the higher power demand to coal-fired generators. Data from the Electric Reliability Council of Texas, or ERCOT, showed that daily coal-fired generation has come in 175 GWh, or 54%, higher month-to-date than the corresponding time in 2021. By contrast, gas-fired demand has increased just 44 GWh, or 11%, this May compared with May 2021.

Stronger wind generation has also helped alleviate some of the pressure on gas-fired demand, with data from ERCOT showing daily wind generation coming in 107 GWh, or 37%, higher month-to-date than in May 2021.

Outlook

The heat wave is expected to run its course by May 21-22, with CustomWeather forecasting that the average Midcontinent temperature will flip to materially below-normal levels on May 21 and the average Texas temperature will follow suit on May 22.

The average Midcontinent temperature will plummet into the mid-50s F on May 21, down from the mid-70s F May 18-19, according to CustomWeather forecasts. Texas will see its average temperature plunge to the low 70s F on May 22, down from the mid-80s May 18-20.