A severe cold front sweeping across the central United States is set to push natural gas demand to unprecedented levels next week, echoing the record highs of December 2022. This surge in demand is poised to drive electricity and gas prices to their highest in over a year, indicating a significant Power Price increase in the US.
In a chilling reminder of the massive winter storm Elliott of December 2022, which strained gas usage to its limits and nearly triggered a collapse of several electric and gas systems in the eastern U.S., the upcoming extreme weather poses a similar threat to power grids. As electricity demand soars, there’s concern that gas supplies might be hindered due to the freezing temperatures, leading to a Power Price increase in the US.
PJM Interconnection and the Electric Reliability Council of Texas (ERCOT), major U.S. power grid operators, have issued weather watches for January 14-17, bracing for the impact. While ERCOT anticipates normal grid conditions, it has cautioned about the likelihood of increased electricity demand and potential dips in reserves.
The United States is no stranger to the havoc wreaked by extreme cold. The catastrophic freeze in 2021 across Texas and other central states led to widespread power outages affecting millions, resulting in over 200 fatalities. The inability of several power generators to operate during Winter Storm Elliott led to a settlement of $1.2 billion with PJM.
These past events were partly attributed to reduced gas supplies, as freezing conditions hampered oil and gas wells, pipelines, and equipment, prompting power grid operators and utilities to implement rotating outages due to insufficient electricity supply.
This week’s extreme cold has already caused a decline in gas supply, with “freeze-offs” at Colorado, Wyoming, and North Dakota production sites. U.S. gas output is projected to fall to a 10-week low, a minor drop compared to the massive supply losses during previous winter storms.
According to LSEG, U.S. gas demand and exports are expected to reach new heights on January 15 and 16, surpassing the record set in December 2022. The escalating demand is set to drive up power prices significantly. PJM West Hub is projected to substantially increase next-day power prices, marking the highest since December 2022. Similarly, spot gas prices at the Henry Hub benchmark are predicted to soar, reaching levels not seen since the previous year.
This looming scenario of skyrocketing power prices amid extreme weather conditions underscores the critical balance between energy supply and demand, especially during climatic extremes.