US power sector natural gas demand sets another record in Q1, remains strong in April

US power sector natural gas demand set another record in the first quarter and has remained higher year over year into April, although it could come under pressure from renewable generation and coal this summer.

Demand from the power sector totaled 32.7 Bcf/d in the first quarter of 2024, up 2 Bcf/d from the the first quarter 2023. The increase in the first quarter was chiefly driven by a surge in January to a record 36 Bcf/d 2024, more than 4.9 Bcf/d higher than January 2023 as freezing weather boosted demand while wind generation was low. But gas burn was also slightly higher year-over-year in February and March.

Gas burn has set a time-of-year record in every quarter since the second quarter of 2022.

The trend has continued into April. Gas demand from power plants averaged 30.8 Bcf/d April 1-18, 2.1 Bcf/d higher than the same period of 2023, S&P Global Commodity Insights data showed.

But the record-breaking streak could end in the third quarter as renewables continue to rise and some coal generation returns. Power sector gas demand is forecast to be 0.5 Bcf/d lower year over year at 37.7 Bcf/d during summer 2024, S&P Global analysts said March 22 in their latest short-term outlook.

Gas has continued to displace coal this year, but this has led to increasing stockpiles at coal stations, which could heighten competition between coal and gas this summer. Coal-fired generation was 24% lower year over year in March and around 7 % lower year over year during April 1-16, Shayne Willette, senior research analyst at S&P Global, said April 18.

In addition to rising power demand, the record gas burn was enabled by unusually low hydropower generation last year.

The US Energy Information Administration said April 18 it is forecasting US hydropower generation will rise 6% in 2024 to around 250 TWh, after falling to a more than 20-year low in 2023. "We expect hydropower to increase in nearly every part of the country, with notable increases in the Southeast and in the Northwest and Rockies," its analysts said in an April 18 note.

But EIA is still forecasting marginally higher gas-fired generation in the third quarter of this year, at 540 TWh compared with 538 TWh in the third quarter of 2023, according to its latest Short-Term Energy Outlook, released April 9. Gas is forecast to hold up despite a 20% increase in non-hydro renewable generation to 175 TWh. EIA is forecasting rising power demand and lower coal generation in the third quarter.

Outlook

Beyond the third quarter, forecasters are generally predicting a trend of falling or stagnating power-sector gas demand, contrasting with bullish sentiment amongst natural gas companies.

S&P Global's short-term outlook forecasts that power sector gas demand will fall 19% to below 29 Bcf/d by 2028 compared with 2023 because the Inflation Reduction Act "promotes a surge in renewable capacity build."

EIA forecasts gas-fired generation will be be relatively flat over 2024 and 2025 compared with 2023.

Companies in the gas industry like EQT, Williams and Kinder Morgan are increasingly bullish on power sector demand, particularly as excitement builds over potential demand from data centers to support artificial intelligence.

Kinder Morgan's Chairman Rich Kinder said April 17 the market would increasingly accept that more gas will be needed to fuel data centers "as power demand increases over the coming months and years."

At a March 5 Kinder Morgan investor presentation, CFO David Michels said a Wood Mackenzie forecast for power sector gas burn to be flat "is one that we wholeheartedly disagree with." Michels argued rising renewable generation would benefit gas over coal, and also pointed to rising data center demand. "We disagreed with Wood Mac in the past because we've expected more power generation growth from natural gas, and we've been more right than Wood Mac has," he said. "We think that this is a consistent theme that we've seen played out over the past few years."