US Weather Service forecast put gas generators on deck for record summer demand

US gas-fired power generators could see a record season for cooling demand this summer, if an updated seasonal forecast from the National Weather Service proves accurate.

Growing constrains on coal generation make that outcome even more likely.

In July, August and September, all of the Lower 48 states face a minimum 33-40% risk for above-average temperatures, according to a June 16 seasonal temperature outlook published by weather agency. The risk for hotter weather was predicted at minimum 50% to as high as 70% across parts of the Rockies, the desert Southwest, Texas and the Northeast Atlantic Seaboard.

A weather-normal power burn forecast from Platts Analytics already predicted this summer to see the strongest demand since 2020, when low prices fueled a record-breaking season for gas generators.

During this summer's hottest months from June to August, US power burn is forecast to average over 39 Bcf/d – outpacing demand in summer 2021, but falling just short of the 2020 record average at 40.3 Bcf/d.

Hotter-than-usual weather, which seems all but certain to impact parts of the West and the Northeast, could easily tip the scale, making this season a record-breaker for gas generation. According to data from Platts Analytics, the Northeast and the Southwest have together accounted for over 35% of the US power burn total in recent summers past. For that reason, hotter weather in both regions could have an outsized impact this year.

Month to date, gas-fired power generation in the Northeast has averaged over 9.3 Bcf/d, already setting a new record for first-half June. In the Southwest, power burns have averaged about 3.35 Bcf/d so far in June, trailing the year-ago and 2020 month-to-date averages to rank as the third-hottest start to June, Platts Analytics data shows.

Coal constraints

Growing constraints on US coal generation could exacerbate the risks posed by abnormally hot summer weather.

Over the past 12 months, power generators have retired over 11.2 GW of coal capacity in the US. As the older generating stations are replaced by natural gas and renewables, generators' capacity to simply switch thermal fuel sources in response to high gas prices continues to be further compromised.

Record-setting coal prices may be another constraint. In June, the central Appalachian thermal coal price has averaged a record $156.55/st, according to Platts assessments dating back to 2005. Just this week, CAPP coal prices approached the single-day record high at $160.60/st recorded in July 2008.

If soaring coal prices were not enough to discourage power generators, additional supply constraints could be.

From January to May, US coal exports were projected to total 17.4 million mt – up 11.5% on the year and the highest total volume for the period since 2018, according to Platts Analytics data.

US coal production and stocks, meanwhile, were down sharply in 2022.

Through the first week of June, domestic production has averaged 11.2 million st, continuing to trail historical levels at just 88% of prior five-year average production. At the close of the fourth quarter of 2021, US coal stocks also remained depressed, rising modestly from Q3 to 99.1 million st, but still at their lowest level dating back to at least 2015, data from the US Energy Information Administration showed.