Power-burn represents the daily amount of natural gas that is used for electricity generation. This spring and summer, power burn levels are expected to soar to all-time highs. Power burn is typically strongest June through September, but this year it’s off to an exceptionally strong start. High levels of power burn have historically put upward pressure on natural gas and electricity prices.
Two factors are influencing the increase in power burn:
- Deadline for Mercury and Air Toxics Standards (MATS) compliance
- Lower cost of natural gas
The MATS compliance rule is a federal standard that requires power plants limit their emissions of toxic air pollutants like mercury, arsenic and metals. Power plants are expected to meet a certain level of compliance by April 16th 2015. The more stringent emissions standards have pushed coal and oil plant operators to retire some of their oldest and dirtiest coal plants. As a result of MATS, more than 6,400 MW of operational coal fired capacity is set to retire from now through April 2015. Natural gas generators will be the main replacement for these coal retirements. New natural gas plants are under construction and many more are scheduled between now and the end of the year.
The deadline for MATS compliance is coming at a time of relatively low natural gas prices. Natural gas pricing is now trading at levels not seen since the oversupplied market of 2012. Power burn generation should stay cost competitive throughout the summer, but these new demand sources for natural gas will limit the downside potential of electricity and gas pricing in the Northeast. While we expect record natural gas production levels this summer, more of the gas produced is expected to be diverted away from storage inventories and used for power burn.