US power sector gas demand to peak in 2024 on renewables buildout: Commodity Insights

Power sector gas demand in the US is expected to peak in 2024 thanks to a massive buildout of renewables that will offset rising power demand, including from data centers, S&P Global Commodity Insights analysts wrote in their latest short-term natural gas outlook.

The outlook, which now includes 2029, forecasts a total decline of 12% in power sector gas demand by 2029 compared with 2023.

"Even though net on-grid electricity demand is anticipated to grow robustly over 2023-2029, gas-fired generation is expected to decline as the US Inflation Reduction Act (IRA) promotes a surge in renewable capacity build," analysts wrote late May 23.

Coal could also claw back some market share from gas from 2025 as higher gas prices "lead to a reversal of the coal to-gas switching happening in 2023-24," the outlook said. Commodity Insights is forecasting a sharp increase in Henry Hub prices in 2025 and 2026 as a swift growth in LNG feedgas demand will keep inventories "mostly below the five-year average, with production growth chasing the feedgas escalation pace."

Summer 2024

Power demand in April-October 2024 is forecast to be similar to 2023 levels, assuming normal weather, the analysts wrote. "This is dependent on several factors such heat levels, coal-gas switching and renewable generation performance."

Power sector gas demand has set a time-of-year record in every quarter since the second quarter of 2022 and has remained strong in Q2. It was 1.3 Bcf/d higher year on year in April, and 1.2 Bcf/d higher year on year May 1-24, Commodity Insights data showed.

Strong coal stockpiles at power stations are seen as a potential downside risk for US gas demand and prices this summer. There are signs that coal producers are scaling back production in response, "but peak-demand burn will be the most important factor for a better balance in this market," the outlook said.

Stockpiles increased by 5.1% month on month to 134 million st in March 2023, the Energy Information Administration reported May 23. EIA estimates there are on average around 145 days of burn held at both bituminous and subbituminous coal power plants.

Coal production fell to 33.1 million st in April, down from 41 million st in March and 47 million st in April 2023, according to EIA estimates.

Data center demand

Midstream gas companies including Kinder Morgan and TC Energy were confident of continued growth in demand from power plants during Q1 earnings calls, often citing demand from data centers. US utilities also struck a bullish tone, partially from data centers.

Commodity Insights power analysts are less bullish. Growth from data centers is expected to be "substantial, but below utility forecasts owing to significant data center electric energy efficiency gains," analysts wrote April 24. Companies driving the data center buildout, like Microsoft, Alphabet and Amazon, "have strong incentives to improve efficiency and minimize environmental impacts."

Major chip suppliers, including Nvidia, have announced "huge efficiency gains" in their next-generation chip designs, the analysts wrote. Outside of chips, "AI models can be configured to be more energy efficient, such as by using fewer bits. More water-based cooling mechanisms are emerging as an alternative or supplement to air cooling, further reducing energy use."