US FERC's winter reliability report highlights gas supply, extreme weather risks

The US is expected to have sufficient power generation headed into what is projected to be a relatively mild winter, but natural gas supplies remain a concern in the fuel-constrained Northeast, according to the Federal Energy Regulatory Commission's annual winter reliability assessment.

Increased gas exports, combined with lower-than-average storage inventories, are expected to put support higher gas prices for the winter, the report said, anticipating that high LNG prices also could lead to scarce gas supplies during peak demand in some areas.

Following the Northern Hemisphere's second-hottest summer on record, the National Oceanic and Atmospheric Administration is forecasting higher-than-average temperatures for most of the US, except the Pacific Northwest and western North Central regions, this winter.

But the ISO New England and Midcontinent Independent System Operator regions, as well as Texas and parts of the Southeast, could struggle with power capacity shortfalls during extreme weather scenarios similar to the winter storm in February 2021, FERC staff said during a presentation at the agency's Oct. 20 monthly open meeting.

The mid-February 2021 severe cold event knocked out power for millions of customers the Electric Reliability Council Of Texas served and resulted in more than 200 deaths.

"It is good news that in each region of the country, we have a sufficient amount of generating capacity to meet effective demand under normal conditions," said Chairman Richard Glick. "But we also know, based on the last several years, that extreme weather can occur quite frequently and all over the place in different forms."

New England challenges

Like previous reports, FERC's reliability assessment found that New England's power grid is particularly vulnerable due to the region's limited gas pipeline capacity and high levels of gas-fired generation.

FERC recently held a forum in Burlington, Vermont, where industry experts proposed a range of solutions, including market reforms that further incentivize generation resources to store fuel on-site ahead of extreme weather forecasts.

During the Oct. 20 meeting, Glick called the New England region's reliance on LNG imports "unsustainable."

"It's just crazy to be so reliant on LNG imports," Glick said, citing a spike in natural gas prices.

Natural gas futures prices near Boston for winter 2022-2023 were $23.57/MMBtu, a 38% increase from last winter, FERC staff noted.

Outside of New England, gas pipeline constraints may occur in Southern California and the desert Southwest, according to the report, which also cited an outage reducing capacity on the El Paso Natural Gas system. California gas supplies also could be affected as TC Energy's Baja XPress Project enables new exports to Mexico, the report said.

Glick also repeated calls for more interconnection ties between the siloed Texas power grid, which is largely exempt from FERC regulation, and the rest of the US transmission system. ERCOT was forced to implement massive power outages during the 2021 winter storm, but the neighboring MISO and Southwest Power Pool regions avoided widespread blackouts by importing power from the PJM Interconnection, Glick noted.

"We need to spend a lot more time talking with Texas and others about building extra transfer capacity so that, when things are cold [and] when Texas really needs power, they can wheel power in from other regions," Glick told reporters following the Oct. 20 meeting.

Global gas market impacts

Turning to the natural gas markets, Kelly Shannon with FERC's Office of Energy Policy and Innovation noted that gas futures prices this winter exceed the final prices of last winter at nearly every major US trading hub.

Global markets are likely to affect US gas markets and prices, according to FERC staff, while domestic consumption is expected to see relatively little growth.

"US LNG export demand is forecasted to remain high this winter, due to strong forecasted profit for exporting to both European and Asian markets," Shannon said. Net exports are forecasted to be 24% above last winter's levels, driving most of the rise in gas demand, along with a 3.5% rise in residential-commercial use.

"High global LNG prices are likely to continue to incent US LNG exports, even in a very cold winter scenario in which spot prices climb well above recent averages," she said.

Glick said it is important for FERC to keep an eye on the higher gas prices, which also supports higher electricity prices, but he noted the commission lacks authority to control the gas prices.

"We do have authority over market manipulation, and we need to make sure that people don't take advantage of the situation," he said while adding he did not contest the "geostrategic significance" of gas exports.

The focus on gas prices sparked a brief debate among FERC members.

Commissioner James Danly worried FERC had failed to address some systemic problems contributing to higher prices by slowing reviews of gas pipeline infrastructure.

Uncertainties about when FERC will provide a decision on the merits means developers "can't give a timeline to anyone, not their bankers, to their potential counterparties, not to their shippers," he said.

And Commissioner Mark Christie argued that one of the drivers of gas demand, which ultimately affects prices, is the "premature retirement" of coal-fired generation.

In comments to reporters, Glick pushed back on both those explanations for rising prices, saying the reason is simple supply and demand.

"Demand, in particular, is going up at a very great rate," he said, pointing to exports as the source of upward pressure.