The U.S. Energy Information Administration (EIA) has announced its forecast for a record-high natural gas consumption in the United States this summer, primarily driven by the increasing demand for air conditioning during the scorching heat. In the July edition of its Short-Term Energy Outlook (STEO), the EIA predicts a 4 percent surge in U.S. electricity generation from natural gas in July and August 2023, compared to the same period last year.
According to the EIA’s forecast, natural gas will account for approximately 46 percent of the country’s electricity generation during the two summer months and contribute to 41 percent of the overall electricity generation for the year. Additionally, the report anticipates a 6 percent rise in electricity generation from renewable sources and a 2 percent increase in generation from nuclear energy in July and August 2023, in comparison to 2022.
EIA Administrator Joe DeCarolis expressed keen interest in monitoring the United States’ electricity mix, stating, “This is an interesting time to monitor the United States’ electricity mix. As coal provides less and less power to the grid, we expect the contributions of natural gas and renewables, in particular, to increase.”
Compared to last year, natural gas prices remain relatively low, and the addition of approximately 6,000 megawatts of new combined-cycle natural gas turbine capacity in 2023 has made electricity generation from natural gas more cost-effective than ever before. Furthermore, U.S. operators have successfully integrated nearly 15,000 megawatts of wind and solar capacity into the system since the beginning of this year.
The EIA’s July STEO also revises the growth forecast for U.S. renewable diesel production. The agency now expects the United States to produce around 161,000 barrels per day of renewable diesel in 2023, reflecting a substantial 66 percent increase from 2022. Additionally, the report predicts a further 36 percent boost in production for 2024.
“We still anticipate significant growth in renewable diesel production, but due to adjustments in the Renewable Fuel Standard, the growth rate has been slightly reduced in the short term,” explained DeCarolis.
In our latest forecast, experts predict that the Brent crude oil spot price will average $78 per barrel (b) in July. Over the next few quarters, crude oil prices are projected to gradually increase, with expectations of reaching around $80/b in the fourth quarter of 2023 and averaging approximately $84/b in 2024. This forecast is primarily based on the anticipated decline in global oil inventories over the next five quarters.
Revised EPA Rule Impacts U.S. Renewable Diesel Production Growth
Following the U.S. Environmental Protection Agency’s (EPA) revised Renewable Fuel Standard (RFS) rule on biofuel volume requirements issued on June 21, a reduction in our forecast for renewable diesel production growth has been made. Despite the revision, we still anticipate that renewable diesel production in the United States will continue to grow, reaching 219,000 barrels per day (b/d) by 2024.
Natural Gas Prices Set to Rise with Declining Production
With declining natural gas production narrowing the existing surplus of natural gas inventories compared to the five-year average, experts forecast that the Henry Hub spot price will rise in the coming months. In the second half of 2023 (2H23), Henry Hub prices are expected to average over $2.80 per million British thermal units (MMBtu), an increase from the approximately $2.40/MMBtu recorded in the first half of the year.
Solar Energy Leads U.S. Electricity Generation Growth
Solar power has emerged as the leading source of new generating capacity in the United States this year. The increased solar capacity contributes to the forecasted 23 percent surge in U.S. solar generation during the summer months of June, July, and August, compared to the previous summer. Additionally, the lower natural gas prices further diminish our projection of coal-fired electricity generation for this year. It is estimated that U.S. coal-fired generation in 2H23 will be 75 billion kilowatthours (18 percent) less than in 2H22.