Source: Citi Research
EIA 61-Bcf build as gas switching fell: Run rates of Texas coal units rose sharply as gas prices climbed
§ The gas inventory
surplus to last year only narrowed to 748-Bcf, pointing to the need for gas
switching to be strong before and after summer. An average of 5 to
6-Bcf/d of switching is still required from now through to the end of the
injection season to work off the excess gas. Note that on days with very higher
power demand, when most power plants are running, including coal, switching
actually goes down. To make up for the reduction in switching in summer,
stronger switching is needed on most other days. First, to work off the
inventory overhang of 748-Bcf, the weekly injection number has to be about 23 to
28-Bcf/week smaller than last year’s figures to put gas inventory between 3.8
to 4.0-Tcf before the start of winter. Working off this inventory overhang
alone requires gas demand to be between 3.3 to 4.0-Bcf/d higher than last year.
Second, total gas supply is also higher by about 2-Bcf/d due to stronger gas
production y-o-y. Hence, the total amount of excess gas is about 5 to 6-Bcf/d
above last year’s level, implying a need for nearly the same amount of gas
switching on average to absorb this gas. As such, switching has to be larger on
§ Higher gas prices are
reducing the amount of switching, particularly in Texas, where utilization
rates of power plants burning cheap Powder River Basin (PRB) coal are rising
sharply. (Figs 2, 3) Katy hub prices as proxies for local gas prices
in Texas rose to $2.3/MMBtu last week, implying a marginal cost of generation
of about $23/MWh for a single-cycle, intermediate load gas-fired power plant.
Three weeks ago, the generation cost for the same type of units was $18/MWh,
compared with a marginal cost of about $21/MWh, fuel only, for those Texas coal
units burning PRB.
The charts show coal utilization in Texas in the high 20's% to low 30's% in March and early April have now risen to about 60%.