Normal summer natural gas demand expected this year

Natural Gas Report
By Casey Whelan | April 01, 2013

Feb. 25—Natural gas demand exploded last summer as low prices caused electric utilities to swap base load coal units for base load natural gas units. As the chart shows, the demand jumped by 38 percent in April 2012 compared to 2011. Natural gas prices were at a 10-year low a year ago, creating fertile ground for price-induced demand. In May, demand was up by 40 percent compared to April 2011. Even during the peak months of July and August, year-over-year demand was up by 10 to 15 percent. Clearly, electric generation demand helped address inventory issues last summer and put the market in a relatively balanced position going into winter 2012-’13. 

Will demand continue to increase this year or will we fall back to more normal levels? From 2008-’11, natural gas electric generation increased 4 percent per year on average, but grew by 21 percent between 2011 and 2012. I don’t believe we will have another 20 percent bump in demand. I expect demand to drop somewhat, since I believe a fair amount of summer 2012 demand was tied to low gas prices and the heat across much of the U.S. Prices aren’t likely to drop below $2 per million Btu as they did last spring since storage inventories are lower. In fact, natural gas prices are 22 percent higher today than last year at this time. Without lower prices, it may not be economic for natural gas to displace coal. With respect to weather, I won’t even venture a guess!