Energy Indicators

July 17, 2024

Natural gas exports are recovering and poised to rise further. Real power prices are rising-achieving new highs-while the Electric Reliability Council of Texas (ERCOT) eyes the potential for August power outages. Oil and gas producers are split on whether industry consolidation will lower the trajectory for U.S. production growth over the next five years.

U.S. natural gas exports

The U.S. exported a record volume of natural gas in 2023, with liquefied natural gas (LNG) accounting for more than half of all U.S. natural gas exports, according to the Energy Information Administration (EIA) (Chart 1). Pipeline exports to Canada and Mexico are rising slowly over time, whereas LNG exports have exhibited more volatility and growth due to significant capacity expansions and unplanned outages the past two years.

In a recent report released by the EIA, it found that the value of natural gas trade declined significantly in 2023 despite rising volumes due to lower energy prices. Canada imported 7 percent more in terms of volume from the U.S., but it was only valued at about half of 2022's amount.

Electricity

Texas electricity prices tick up heading into summer

Despite rising exports, real natural gas prices returned to prepandemic levels in 2023. Henry Hub natural gas averaged $2 per MMBtu in June 2024. In contrast, real power prices have been rising. In April, the average retail residential price per kilowatt hour (KWh) in Texas was 14.3 cents, while the national average was 16.1 cents per KWh (Chart 2).

Adjusted for seasonality and inflation, electricity prices in Texas remain below the national average on a per-kilowatt-hour basis. Both are highly variable, but the ERCOT market model and the high percentage of natural gas generation tie Texas' power prices more closely to natural gas, which fuels the last generators turned on when demand threatens to exceed supply.

In a recent report, the EIA foresees the average residential customer's monthly electricity bill to be about $173 nationally and expects the summer average price across June, July and August to be 16 cents per KWh. Southern households tend to consume more kilowatt hours during the summer months due to their climate being more humid and warmer, offsetting the lower prices.

ERCOT eyes capacity as weather heats up

ERCOT expects monthly summer peak load-the maximum daily amount of power demanded-to hit its highest level of 77,517 megawatts (MW) in August (Chart 3). At the same time, the projected amount of available capacity is expected to drop to its seasonal low point. This increases the likelihood of an Energy Emergency Alert from ERCOT in August and September.

The declines in expected capacity are coming from both dispatchable power sources-like thermal, energy storage and hydropower-and from nondispatchable generation-power sources like solar and wind (weather-dependent sources). The declines are in part related to congestion on existing transmission infrastructure.

Transmission constraints in South Texas can limit the availability of coastal wind generation to the broader grid and may become a binding constraint in August. To avoid overloads, coastal wind power needs to be cut off when transmission lines are congested. This risk is expected to persist until the completion of the San Antonio South Reliability Project in Summer 2027.

Energy Survey

Executives' consensus: Merger and acquisition (M&A) activity will lower oil production in next five years

In a report from the EIA, it was found that 2023 M&A activity spending amongst exploration and production companies increased to its highest levels since 2012. Oil and gas executives weighed in on the effect this is likely to have on production in the second-quarter release of the Dallas Fed Energy Survey (Chart 4).

When asked, nearly half (48 percent) of oil executives surveyed believed oil production would be slightly lower over the next five years. However, that sentiment was skewed toward smaller firms. Executives of firms producing at least 100,000 barrels per day responded with "no impact."

Public link

Please use the above public link if you want to share this noodl on another website.