Natural Gas Use for Power Generation Higher this Winter

February 2016, Vol. 243, No. 2

So far this winter, natural gas consumption in the electric power sector (gas burn) has been higher than in any previous winter. According to Bentek Energy, gas burn in the electric power sector has averaged 25 Bcf/d so far this winter (Nov. 1-Feb. 8), up 17% from last year’s average of 21.4 Bcf/d during the same period and significantly higher than the 18.8 Bcf/d average of the past five years.

Low natural gas prices have been the primary driver of increasing natural gas use for power generation, although reductions in coal capacity and the availability of efficient gas-fired generating units have also played a role.

On an annual average basis, the electric power sector is the largest consumer of natural gas, using more than the industrial sector and each of the buildings sectors (residential and commercial). Although consumption of natural gas in the power sector peaks during the summer — when electricity demand is highest — the power sector’s natural gas consumption during the winter has been increasing as more generation switches to gas and more households rely on electricity as a main heating source.

Spot natural gas prices at the Henry Hub in Louisiana, a national benchmark, averaged $2.61 per MMBtu in 2015, the lowest annual average level since 1999. Prices began the year relatively low and continued to fall throughout 2015 — the December average was $1.93/MMBtu, the lowest monthly price since March 1999.

Relatively low natural gas prices encouraged the increased use of natural gas to generate electricity. EIA’s Short-Term Energy Outlook expects natural gas prices to increase over the next two years, leading to a slight reduction in the consumption of natural gas for power generation. However, power-sector consumption of natural gas would still be near historically high levels.

Capacity factors of natural gas-fired plants have been rising for years, and over the past several months, capacity factors for natural gas-fired combined-cycle plants have finally eclipsed coal-fired plants as natural gas is increasingly used to generate electricity. Capacity factors reflect a generator’s actual output compared with its capacity, and they are a measure of how much a fleet of generators is actually run.

In addition to lower natural gas prices, improvements in the efficiency of new natural gas plants are helping to increase the economic attractiveness of dispatching gas-fired generation. In 2015, about 40%— 6,200 megawatts (MW) — of all new utility-scale plants of 1 MW or greater were natural gas-fired plants. Another factor in the increasing gas burn is the growing number of coal plant retirements. Preliminary reports indicate that nearly 15,000 MW of coal-fired capacity was retired during 2015.

Gas burn has increased in almost all regions in the United States this winter, but the reasons for the increase vary regionally. The Pacific Northwest region had the largest percentage increase in natural gas burn because of lower-than-normal hydro generation in 2015. The Southeast and Northeast regions use the most natural gas on a regional basis, and their gas burn has increased by 17% and 15%, respectively, thus far this winter compared with the same period last winter.

In the Southeast, both declining use rates for coal plants and continuing coal plant retirements drove the increase in natural gas burn. States in the South Census Region alone accounted for more than half of total coal retirements in 2015.

1In the Marcellus region of the Northeast, natural gas has consistently been priced below gas at the Henry Hub, making it even more economic in that region. Additionally, infrastructure additions have made it easier to move natural gas to users.

Principal contributors: Michael Mobilia and Christopher Peterson, Energy Information Administration

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