US power generation
According to data released by the EEI (Edison Electric Institute), the United States generated 86,817 gigawatt hours of electricity during the week ended September 4. That’s 4% more than the 83,468 gigawatt hours the country generated during the week ended August 28. This was the first increase in four weeks.
As we saw in the previous part of this series, natural gas demand from the power sector increased in the week ended September 9. So it’s likely that we could see another weekly increase in power generation for the week ended September 11. Be sure to watch for our report next week. On a year-over-year basis, the United States generated ~1.1% less power in the week ended September 4 compared to the corresponding week in 2014.
Natural gas versus coal
Since electricity generation companies depend mainly on coal or natural gas to generate electricity, increased electricity generation is likely to boost demand for coal and natural gas. This would be positive for both coal and natural gas producers.
However, given that natural gas is a cleaner fuel and is abundant, it’s expected to take market share away from coal in the long term. This would be bullish for natural gas prices and natural gas producers such as Devon Energy (DVN), Southwestern Energy (SWN), Range Resources (RRC), and QEP Resources (QEP). These companies make up ~3% of the Vanguard Energy ETF (VDE).
According to the EIA (U.S. Energy Information Administration), a total of ~889 Bcf (billion cubic feet), or ~29.6 Bcf per day, of natural gas was consumed for the purpose of electrical power generation in June, the latest month for which data is available from the EIA. It’s interesting to note that of the ~1,927 Bcf delivered to end users in June, electricity generation accounted for the most at ~46%.
Also, according to the EIA, coal consumption in 2015 is expected to fall 7%, fueled by lower natural gas prices and increased electricity generation based on renewable energy. The EIA forecasts that the share of coal-fired electricity in terms of overall power generation will average 8.2% lower than it did in 2014. In contrast, use of natural gas for electricity generation should rise 14.5% this year compared to last year.
The EIA also estimated that coal-fired generation in the first half of 2015 was 34% of total generation, down from 40% in the same period in 2014. Meanwhile, the contribution of natural gas was at 30%, up from 25% in the same period last year.