Graphs that Make you Go “Hmmmm…”

January 9, 2022

End of the year summary from EIA has a snapshot of where we are with natural gas generation in the US, that will not be surprising to those who have been following here.

As the US has now become the world’s largest exporter of Liquified Natural gas, US consumers are seeing the end of a decade and a half of historically low and stable natural gas prices. Also in the graph above, the most eye catching feature is the spike from the Texas power debacle of a year ago, also well covered here.
There’s going to be a lot of attempts to blame the rise in energy cost on the renewable transition, but a larger reading does not, I believe, support that view.

Energy Information Agency:

Average wholesale prices for electricity at major trading hubs in the United States were higher in 2021 than in 2020 as increasing costs for power generation fuels, especially natural gas, pushed electricity prices higher in the second half of 2021. Constraints on electricity supply as a result of cold weather in the central United States also created price spikes in February 2021. 

Wholesale electricity prices were especially volatile last year in the Electric Reliability Council of Texas (ERCOT) market. A major winter storm in February led to significant energy disruptions in Texas. Extreme cold temperatures restricted the flow of natural gas for power generation, and many wind turbines froze. These supply constraints caused large increases in hourly electricity prices in the ERCOT day-ahead market. Between February 14 and February 19, hourly wholesale prices at the ERCOT North trading hub exceeded $6,000 per megawatthour (MWh) 70% of the time. For the month of February, the Texas wholesale electricity price averaged $1,485/MWh. 

The cold weather in February 2021 also caused natural gas price spikes throughout the United States, which led to increased electricity prices at other wholesale markets besides Texas. February wholesale electricity prices averaged $42/MWh in the PJM Interconnection market, which serves the mid-Atlantic states, and $73/MWh in ISO-New England. 

The cost of natural gas is a significant driver of electricity prices because it often acts as the marginal (highest cost) fuel of generating units that operators dispatch to supply electricity. Natural gas prices have remained relatively low in recent years; the cost of natural gas delivered to electric generators averaged $2.40 per million British thermal units (MMBtu) in 2020. However, natural gas prices trended higher over the last year. The delivered cost of natural gas to electricity generators grew from $3.19/MMBtu in January 2021 to an estimated $5.04/MMBtu in the fourth quarter of 2021.


2 Responses to “Graphs that Make you Go “Hmmmm…””

  1. rhymeswithgoalie Says:

    A long, blistering heat wave or a long, Arctic cold wave can increase the demand for electric power and heating fuels. They wouldn’t blame that on renewables, would they?
    [Narrator: They would.]

  2. rhymeswithgoalie Says:

    Per the chart with the spike in “average” natgas cost: That represents a time with a lot of natgas wasn’t available to the market. As with stock markets, a lot of volatility occurs when low volumes are being traded.

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