Top 10 questions facing North American gas and power markets in 2024

In 2023, the North American gas and power markets were again challenged by extreme weather, setting peak-demand records in several markets. Natural gas prices bottomed out following their rally in 2022 but began to recover in the fourth quarter as LNG and storage boosted demand. Meanwhile, the power sector registered the largest build-out of renewables and battery energy storage in a single year, eclipsing the record set in 2021. What is in store for 2024? This short blog identifies some of the key questions facing the North American gas and power markets that we are following and will be discussing throughout the year in our research:

1. Offshore wind: Is the industry past the worst of its growing pains? In the past year, numerous offshore wind projects were delayed and several contracts were canceled, leading S&P Global Commodity Insights to revise down its outlook for additions in the US to 12.4 GW through 2030. Issues cited by developers include rising equipment costs, an inadequate labor force, interest rates and a lack of vessels, all of which have driven up project costs and made contracts signed years ago now uneconomic. But with many of the most economically challenging projects having already stepped away and states generally reaffirming their commitment to the sector in spite of higher costs, has the industry passed the nadir? Will 2024 see a rebound?

2. Next US LNG wave: Absent structural growth from LNG feedgas in 2024, the market is once again treading water. A recent announcement by the project developer for Golden Pass LNG that mechanical completion is expected in the second half of 2024, with first LNG in 2025, pushes the ramp in US LNG feedgas from 2024 and into 2025. Plaquemines LNG, under active construction, is expected to place its modular trains online between March 2025 and September 2026. Cheniere Energy Inc., the Corpus Christi LNG Stage III project sponsor, is optimistic that first LNG from the Stage III midscale trains can be produced in 2024, owing to a faster-than-anticipated construction timeline; if true this would likely kick off the next LNG wave.

3. Coal retirements: Will we see further delays? The US has averaged about 10 GW of coal retirements per year over the past decade, but only 2 GW of coal plants have announced a retirement in 2024. The return of load growth, delays in bringing renewables online and a renewed focus on reliability have led utilities and other generation owners to delay and in some cases reconsider their plans for retiring coal plants altogether. Will these trends continue in 2024? Or will the coal fleet resume its steady decline?

4. Elections and the economy: What do the upcoming federal elections in the US mean for the Inflation Reduction Act (IRA), Environmental Protection Agency rules and other government spending programs? Will states enact more anti-renewable legislation and/or bans on new gas hookups? Will we see a compromise on permitting reform that enables both new transmission and interstate pipelines? Will the Federal Reserve begin to lower interest rates and improve the outlook for capital-intensive investments?

5. Load growth: Will the rapid growth in datacenter demand migrate beyond Dominion Energy Inc.? Dominion caught the attention of the power industry in 2023 with a load forecast that showed datacenter load doubling by 2028 and reaching 10 GW by 2035 — nearly half of the utility's peak demand. The growth is so rapid that the local utility may not be able to keep pace, or the cost of doing so may be prohibitive. Will that lead the datacenter industry to look elsewhere for expansion? If so, where?

6. Coal-to-gas displacement: Mild winter weather through early January was unsupportive of space-heating loads as natural gas production soared to new highs, sending natural gas prices well below $3/MMBtu once again. Storage inventory has moved above the five-year average and absent declines in production will keep gas prices sub-$3/MMBtu for most of the year, setting the stage for another year of significant coal-to-gas displacement in the power sector to balance the gas market.

7. Extreme weather: During the December 2022 winter storm, extensive forced outages from gas-fired generators (and other energy resources) far exceeded expectations and led to firm load shed in southeast US power markets. This was not the first event of this kind in recent years. Regulators and independent system operators are increasingly focused on ways to support reliability during periods of extreme winter weather. How are market rules expected to evolve to address ongoing winter reliability concerns? Will regulators push gas and power markets to better coordinate? Will markets incentivize firm fuel supply?

8. Gas storage capacity additions: Nearly 120 Bcf of new working gas storage capacity has been announced recently, centered on the Gulf Coast region. Growing LNG feedgas demand and power sector loads that are expected to become more seasonal and intermittent suggest the market will need more storage to help balance the volatility. Will we see more storage announcements in 2024?

9. Investment: Will clean energy dealmaking reach new heights? Commodity Insights estimates over $340 billion of clean energy projects have been announced since the IRA that will need significant debt financing to move forward. While clean energy financing was solid in 2023, it lagged expectations as developers leaned on equity deals while lenders waited for interest rates to plateau and for the treasury to issue further guidance on tax credit policy, including transferability and hydrogen. These events have now happened. Could we see record levels of financing in 2024? Will a market for transferable tax credits emerge?

10. New technologies: State and federal policies are starting to encourage power sector hydrogen usage to decarbonize gas demand — will these efforts continue in 2024, or are the costs and inefficiencies too much for decarbonization efforts to bear? The Petra Nova carbon capture facility restarted in September 2023. Net Power Inc. continues to pursue demonstration projects for its novel carbon capture technology. Will IRA incentives alone be enough to restart the carbon capture and storage (CCS) industry after a "lost decade" of limited progress? One of the first proposed steam methane reforming (SMR) facilities at scale was canceled in 2023 due to limited buyers. Investor interest persists, but the economics continue to appear challenging. Will one of the many players in the industry show progress in 2024?

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This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.