No holiday cheer for coal and nukes

Three studies released in recent days – the North American Electric Reliability Corp.’s “2017 Long-Term Reliability Assessment,” the Energy Information Administration’s “Short-Term Energy Outlook,” and natural gas guru Andy Weissman’s “Natural Gas Market Update,” – provide no holiday cheer for the U.S. nuclear and steam coal industries.

All three reports see continued slow growth or decline in electric demand, greater additions of gas and renewables to the generating mix, and steady or falling natural gas market prices.

The NERC report finds, “Amid slower demand growth, conventional generation continues to retire with rapid additions of natural gas, wind, and solar resources.” According to NERC, “NERC-wide electricity peak demand and energy growth are at the lowest rates on record with declining demand projected in three areas,” and that “conventional generation retirements have outpaced conventional generation additions with continued additions of wind and solar,” while “natural-gas-fired capacity has increased to 442 GW from 280 GW in 2009 with an additional 44.6 GW planned during the next decade.”

According to EIA, an Energy Department agency, “The forecast 2018 generation shares for natural gas and coal remain relatively unchanged from 2017, averaging 32% and 31%, respectively. Generation from renewable energy sources other than hydropower grows from about 8% in 2016 to a forecast share of nearly 10% in 2018. Nuclear power’s forecast share of total electricity generation averages about 20% in both 2017 and 2018, similar to its 2016 level.” Electricity demand remains flat.

EIA forecasts “that natural gas production in 2018 will be 6.1 Bcf/d higher than the 2017 level,” with a small spot price rise in 2018 “from an annual average of $3.01/MMBtu in 2017 to $3.12/MMBtu in 2018.” The price increase, says EIA, will be driven by growth in gas exports and an increase in domestic consumption.

Unlike EIA, Weissman is bearish about natural gas prices, noting, “Natural gas production has roared ahead over the past year – increasing 6.0 Bcf/d year-over-year according to recent pipeline flow models. Stunning growth has been observed nearly across the board, spanning most producing regions of the Lower 48.” He says, “As production increases continue to sharply outpace core demand gains, the market will become increasingly oversupplied – heightening the risk of another natural gas price collapse ahead.”

Weissman’s bottom line: “Ultimately, as the market becomes increasingly aware of the likely natural gas oversupply ahead, natural gas prices could fall below $2.50/MMBtu this spring. Rampant production growth for the second straight year remains the key driver, and potential forecast warming only heightens the extent of downside risk. Other factors – including potential seasonal shut-ins of LNG during the spring and fall – could lead to an even steeper decline in prices.”

— Kennedy Maize