Natural gas – touted by many energy analysts as the “fuel of the future” years ago – has battled coal as the largest energy source for electricity generation in the U.S. Coal was king until 2016 when natural gas became the leading energy source, and it has increased its market share every year since 2016 with expectations that the trend will continue in the future.
The Energy Information Administration at the U.S. Department of Energy reported this week the share of U.S. total utility-scale electricity generation from natural gas-fired power plants will rise to 37 percent in 2019 compared to 25 percent for coal. EIA also projects natural gas will achieve 38 percent market share in 2020.
Other energy sources for electricity generation in 2019 are nuclear averaging 20 percent, hydroelectric 7 percent, and wind and solar 10 percent.
EIA notes that the industry added 10.5 megawatts of total new generating capacity for natural gas power plants in 2017 (the most current year where figures are available), compared to 6 megawatts for wind and 5 megawatts for solar.
LNG exports from U.S. ports averaged about 6 Bcf/d, which is roughly 7 percent of total gas production, according to EIA. The Wall Street Journal reported that analysts expect demand from LNG facilities to absorb about 12 percent of total production by next year.
EIA forecasts ample supplies of natural gas with dry production averaging 92.4 billion cubic feet per day (Bcf/d) this year, an increase of 8 Bcf/d from 2018. EIA expects production to grow throughout 2019 and average 93.2 Bcf/d in 2020.
The exceptionally low prices experienced recently in some parts of the nation rivaled those of the early days of the industry in the 1950s and 1960s when there was a very small market for natural gas, even in Texas. The spot price at the Waha distribution point in West Texas averaged only $0.77 per Bcf in August while other locations, such as Henry Hub on the Gulf coast averaged $2.19.
The Wall Street Journal reported, “hedge funds and other money manager in August built up a big bet that natural gas prices would decline – the most bearish position in the futures market in over a decade – only to have prices shoot up 25 percent.”
Some investors who used hedge funds to bet on the future of natural gas prices expected prices to be soft and took a short position in August, but the WSJ noted the bearish trend may be softening.
Prices historically soften during the summer months because of lower usage during warmer weather. However, exports and increased consumption in residential, industrial, manufacturing and more usage in power plants due to a rising economy have absorbed the excess supply and firmed prices closing on Wednesday at $2.55.
Over the years, consumers realized that there is an abundance of natural gas that can be delivered at a reasonable price.
Alex Mills is the former President of the Texas Alliance of Energy Producers.