August gas prices lower than July despite heat

OREANDA-NEWS. July 25, 2016. Month-ahead US natural gas prices have declined heading into bid week for August, even as above-normal temperatures are forecast to continue and air-conditioning load stays high.

Sustained heat in the US over the last two weeks is far from pushing power demand to expected summer peaks, but spot gas buyers now have to pay \\$2.75/mmBtu in New York and Chicago and \\$3 in California, the second highest levels of the summer.

Financial markets suggest that August bid week will be down 6pc from July in Chicago and at the SoCal border, 16pc in New York City and 2pc at PG&E Citygates. The Henry Hub was down 7.7pc based on yesterday's futures market settlement.

Gas-fired generation is being dispatched by central power grid operators at the same high rates as in recent months. New England was running 65pc gas units today, while in the Southwest Power Pool they were 36pc. New York state was running 55pc gas- or dual-fueled units.

System operators cope with temperatures in the 90°F range with small amounts of demand response, renewables and better interchange agreements with each other. New England load today is 14pc under its all-time summer peak set 10 years ago. New York demand is 17pc less than the record set three summers ago.

Despite a hot weather alert, loads were coming in under forecasts in the PJM Interconnection today. The breadth of the PJM transmission grid keeps coal-fired generation dominant since power supply is instantly fungible. Coal was serving PJM load this morning at a rate five percentage points higher than gas. Marcellus gas leaving the wellhead with a \\$1/mmBtu handle often costs more than \\$2/mmBtu at the burnertip.

The Midwest Independent System Operator, which regularly overestimates daily demand, expected yesterday's load to be about 1pc under its forecast summer peak. But consumption would up being 5pc less. Gas provided a third of all energy consumed on that grid yesterday.

Temperatures are not surprising power planners today, but control room operators will have to be cognizant of a hot weekend expected in the northeastern grids and in California.

That state's Independent System Operator saw demand outrun forecasts by 2,000MW this morning, and load for tomorrow is expected at 1.2pc higher than today, which is rare for a Saturday.

The Climate Prediction Center has forecast above normal temperatures through August except for south Texas, the upper great lakes and north central plains.