Demand for natural gas from power generators may approach record highs this summer, and reserve margins are expected to be adequate in most regions, but some familiar problems could make the Southern California and Electric Reliability Council of Texas (ERCOT) areas problematic, according to FERC data released Thursday.
The Energy Information Administration is forecasting natural gas power burn will average 35.16 Bcf/d in June, July and August, just 0.3 Bcf/d less than the record high set in summer 2016 and 3 Bcf/d higher than last year, according to FERC's Summer 2018 Energy Market and Reliability Assessment, which was released Thursday. The report was compiled by FERC's Office of Electric Reliability and Office of Enforcement.
"The addition of over 16,000 MW of new capacity to the natural-gas fired generator fleet since the record highs in 2016 and relatively low natural gas prices contribute to expectations for strong natural gas generation this summer. Futures prices for Central Appalachia coal are less than $2.50/MMBtu, while the Henry Hub natural gas futures summer strip reaches as high as $2.87/MMBtu."
And while reserve margins in most areas are expected to cover demand, there are two important regions with the potential for trouble.
ERCOT anticipates that its reserve margin will be below its referecent margin level, FERC said.
"According to the ERCOT summer assessment, significant resource changes since last summer have reduced reserve margins in ERCOT, including the retirement of 4,449 MW of coal capacity in January and February 2018; the retirement of 806 MW of gas-fired capacity in late 2017; and delay in construction of new resources, totaling about 2,100 MW, that will not be available to serve load during the peak."
Still, ERCOT, an independent system operator which manages the Texas Interconnection and is not under FERC's jurisdiction, expects to have sufficient operational tools to manage tight reserves and maintain system reliability. ERCOT has mapped out procedures to maintain grid reliability, FERC said.
"This is going to be a good test for the ERCOT model," said Commissioner Robert Powelson.
Commissioners also said they were concerned about Southern California, where lower-than-average hydro generation and continuing problems at the Aliso Canyon underground natural gas storage facility could create challenges for gas-fired generation. Western snowpack measurements were unusually low this winter.
"This year, snowpack in the Pacific Northwest topped normal levels, but fell well below normal in California," FERC said. "With warmer-than-normal temperatures forecasted for this spring, the snowpack may melt faster than usual, reducing the amount of hydro generation available during the coming summer months to help meet peak electric demand.
"Historically, CAISO [California Independent System Operator] has increased use of natural gas-fired capacity and imports to offset lower hydro generation levels. However, natural gas supply limitations in southern California this year may affect CAISO's use of its natural gas generation fleet and present some risk to CAISO's markets and operations this summer. Distribution level pipeline outages in Southern California could affect the amount of natural gas that can be supplied to power plants and can hamper the movement of natural gas into storage."
The California Energy Commission last week said inadequate gas supplies for electricity generation in Southern California again will hover over the region this summer and cast doubts about next winter.
The Aliso Canyon outage also loomed over both FERC's 2016 and 2017 summer market updates.