The tremendous heat of the last few weeks is having a huge impact on gas demand from power generation and has taken a substantial chunk out of the gas storage surplus. According to early market predictions, this week’s storage report could show another small net injection or possibly no injection at all for the week ending Aug. 4, which (given no change in storage) would leave the storage surplus at only about 13% over levels last year compared to a 15% surplus (year over year) a week earlier and a peak of 39% on March 17.

Last Tuesday’s heat drove gas demand from power generation all the way up to 42.3 Bcf/d, according to Bentek Energy’s U.S. Power — Gas Burn Report, which tracks flows to hundreds of gas-fired power plants nationwide. To put that into perspective, consider that average gas demand in August 2005 for power-gen was only about 25.2 Bcf/d, according to Energy Information Administration data. Total gas demand from all sectors of the market last August averaged 54.3 Bcf/d.

The latest data on gas flows this month to power plants through Aug. 6 show demand month-to-date is up about 7.7 Bcf/d from where it was over the same period last year. Gas demand from power generation during the month of July averaged about 30 Bcf/d compared to less than 25 Bcf/d during July 2005.

Despite average temperatures last summer that were 15% above normal, gas demand from power generation this summer is 16% higher (2.9 Bcf/d) than last summer to about 22.1 Bcf/d, Bentek said. Although gas prices have been high, until just recently their relationship to even higher oil prices has made gas a much more attractive alternative to generators. The substantial increase in the amount of gas-fired generation in the U.S. over the last five years also has served to dramatically increase the level of demand from generation nationwide.

If the trend of above normal temperatures were to continue through August, the market would see the storage surplus continue to decline. However, gas burns by generators have trailed off somewhat since last week’s peak of 42.3 Bcf/d. For example, gas flows to generators over the weekend were averaging about 30 Bcf/d and Monday’s flows (Aug. 7) to generators totaled about 30.3 Bcf/d, according to Bentek’s report.

“Average burn rates for the month of August are still high in the Midwest and Mid-Atlantic regions of the country as MRO [the Midwest Reliability Organization] and RFC [Reliability First Corporation] are both 46% above the monthly average from August last year,” Bentek said in its report on Monday. “As temperatures across the country come down from last week’s heat wave, expect gas burn levels to decline accordingly as both peak and off-peak demand for electricity decreases.”

©Copyright 2006Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.