Denver — Gas-fired power generation in the Midwest has become less sensitive to price swings recently due in large part to a wave of coal-fired power plant retirements over the past several years.
Midwest power burn sensitivity to price shows total power demand at a given temperature is now higher than it was several years ago. However, power demand has been considerably less sensitive to swings in price over the past two winters. Despite the Chicago winter strip trading in a range from $2.75/MMBtu to as high as $3.17/MMBtu this summer, such price swings are less likely to have an impact on power burn than they once would have, according to S&P Global Platts Analytics. Prior to 2016, changes in the Chicago cash price had a relatively strong impact on Midwest power burn.
At 32 degrees, which is the average temperature for the Midwest from November through March, the power demand sample was about 300 MMcf/d higher when Chicago prices were in the $2.50/MMBtu to $3.00/MMBtu range than when they were in the $3.00/MMBtu to $3.50/MMBtu range during the winter months from 2012 to 2015.
Over the past two winters, however, the sample change at the different price levels has been less pronounced. Change in sample demand at the same temperature and price points as mentioned above during the winters of 2016-2017 and 2017-2018 was 175 MMcf/d. For reference, a 175 MMcf/d increase in the sample would drive a 260 MMcf/d increase in Platts Analytics' total modeled demand for the region as a whole.
COAL RETIREMENTS
Power demand's decreased sensitivity to price over the past two winters is likely due to a large amount of coal plant retirements, especially in 2015 and 2016, which has increased the region's reliance on gas for baseload generation. Since 2012, 12.1 GW of coal-powered generation has been retired in the Midwest. The bulk of the retirements occurred in 2016 when 6.2 GW was shut down, which was more than in all the other years combined. Another 1.7 GW of additional coal generation came offline in the summer of 2018 between NIPSCO's 480 MW Baily plant and We Energies' 1.2 GW Pleasant Prairie facility. This suggests the Midwest's sensitivity to gas prices could be even more diminished this winter, and that a shift in prices as mentioned above may drive less than a 260 MMcf/d increase in total power burn.
Platts Analytics forecasts Midwest gas-fired power demand to average 2.05 Bcf/d from November through March this winter, which is slightly more than last winter when powerburn averaged 2.02 Bcf/d. This represents a quick jump in demand as winter 2015-16 only averaged 1.4 Bcf/d.
