Month: July 2022

Dancing with the devil?

[Updates below] Dallas did not go dark on Monday. The Texas grid is flowing strong. But there was cause for concern.

Sustained temperatures above 100 degrees resulted in record high demand for electricity. Persistently high temperatures are forecast.

This year demand for electricity in Texas is regularly exceeding prior records (here and here and here). It is only mid-July, more records will likely fall in weeks ahead.

At about 5PM on Monday electricity demand in Texas hit a new all-time record of 78,264 MegaWatts. The Energy Reliability Council of Texas (ERCOT) reports there was just over 81,000 MW of generation available. The chart below shows Texas-wide electricity demand for Tuesday, July 13, again just within forecasts and capacity.

In terms of supply, over the last few days in Texas there was lots of sun, less wind, and plentiful natural gas. High heat tends to suppress wind density. On Monday wind was generating less than ten percent of installed capacity. Solar sources were producing at just over 80 percent of installed capacity.

Natural gas and other thermal sources were also delivering more than 80 percent of installed capacity. Texas is not the only source of strong pull for natural gas. According to S&P, “… the largest annual increase in gas demand this season appears to be coming from power generators. In the US Southeast – which includes East Coast states outside of the South Central region, like Florida, Georgia and the Carolina – gas-fired power demand is up nearly 2.5 Bcf/d summer-over-summer to trend at an average 13.8 Bcf/d from June 1 to date.” This strong demand has emerged earlier than usual… Along with a roughly 2.3 Bcf/d increase in LNG exports and a combined 400 MMcf/d increase in residential-commercial and industrial consumption this summer, demand in the Southeast is now outpacing supply at some downstream locations, fueling previously unseen price premiums.”

Supply would be tighter and prices even higher if the Freeport LNG terminal was still operating. More supply is available to Texas and nearby with the United States’ second-largest LNG export facility closed. The United States typically exports roughly 10 to 12 percent of LNG production. With Freeport offline exports are likely to be closer to ten than twelve percent. Good for Houston.

Not so good for Hamburg (or Hokkaido or Hyderabad). As Europe loses Russian flows of natural gas, US LNG is an important gap filler. Summer is when European natural gas domes are refilled for winter draw-downs. Current inventories are uneven, but mostly moving in the right direction at the low end of five year averages. But there is cause for concern that ordinary supplies are about to be reduced, while unusual summer heat increases demand (in Europe too), and alternative sources of supply will be too little, too late.

This is another example of an extreme event (weather) prompting a demand surge (for electricity) that challenges both midstream (grid power) and upstream (natural gas, wind, and solar) production capacity. Where effectual demand (access and money) can be deployed and delivery channels are operating, networks have again and again demonstrated robust and creative abilities to fulfill demand. But this has mostly been achieved through unusually — unsustainably? — high capacity utilization levels.

Extraordinary flows are being generated… and regular maintenance is often abbreviated or delayed… and longer hours are being worked over extended periods… and price-increases cause a whole host of downstream complications… and any sustained loss of almost any fraction of production or delivery capacity can quickly exclude a substantial number of customers.

Abundance and fragility are dancing cheek to cheek.

ERCOT Demand for Tuesday, July 12


July 14 Update: A few hours after what’s above was posted, ERCOT projected that demand would exceed capacity on Wednesday afternoon, July 13. While wind capacity utilization picked up slightly yesterday, both solar and thermal were lower (more and more). Once again, Texans cut back and the lights stayed on. But what if we are looking at ten more weeks of this — with the prospect of a couple of hurricanes too?

July 15 Update: Bloomberg reports, “To meet the surge in power demand, Ercot, the grid operator, is leaning heavily on a mechanism called reliability unit commitments to ensure there’s enough supply. Plants are being regularly ordered to go into service, or remain in operation, and skip any scheduled maintenance. The measure also overrides shutdowns for economic factors or any other issues. And Ercot is using the rule more than ever before as the state battles bout after bout of extreme weather… Maintenance for power plants — especially older ones — can be time consuming and complicated, said Webber, who also serves as chief technology officer of Energy Impact Partners, a clean tech venture fund “You kind of have to dismantle the plant,” he said. “It’s not something you can do in a couple of hours.””

Updating Big US Flows

Unprecedented 2021 demand prompted unprecedented 2021 US flows… and plenty of related supply chain stress. During the first half of 2022 US demand has stabilized (at close to pre-pandemic trends). Flows are off their peaks and dispersed over more channels. Supply Chain stress is reduced. The United States is, however, still pulling much more push than pre-pandemic.

The west coast Longshore and Warehouse Union contract expired July 1 (more). Work continues while negotiations continue. Just in case (and looking for dock-space and available rail freight) some shipments have shifted to US Atlantic and Gulf coasts. Overall inbound US flows are within 5 to 10 percent of 2021 all-time records.

There has been — still is, in some quarters — concern that China-US flows are constrained by counter-covid measures in China. But overall US imports from China have remained well-above pre-pandemic levels, even as maritime rates (more) have fallen from stratospheric to merely well above “ordinary” (whenever that was).

It is increasingly clear that reduced US demand for many China-sourced goods has coincided with the friction caused by China’s lock-downs (more and more and more). There is still an opportunity for upstream capacity constraints to complicate downstream fulfillment this Christmas, but those yin/yang proportions are unlikely to be clear for another eight to ten weeks.

Meanwhile a strong dollar makes imports cheaper. The US is spending more on imported food than ever before, about one-third more than pre-pandemic. But the US is still more than 80 percent self-sufficient on most foods — and remains the planet’s largest exporter of food-related products.

Domestic and global food flows are troubled by weather related constraints in many places and war-related disruption of Ukraine’s huge grain exports. It is, however, too early to be confident — either way — regarding Northern Hemisphere 2022 harvest conditions. Yesterday’s USDA Crop Progress Report is mixed. AgWeek headlined, “spring wheat improving, slight decline in corn, soybean conditions.” Wheat futures have fallen considerably from their February 28 high — and consistently since early May — but current prices remain much higher than decade-long averages (more). Yet even with recent softening, global food prices have increased farther and faster than US food prices.

The United States is also mostly self-sufficient in energy. Since 2019, for the first time since the 1950s, the US has produced more energy than it consumes. (See the chart below.) The nation still imports about one-fifth of domestic energy consumption, which helps balance demand and supply by securing beneficially priced crude or finished products for specific seasons and regions. In 2021 79 percent of total US energy consumption was supplied by fossil fuels. US refinery capacity is currently very tight and operating at unusually high utilization rates (more and more and more).

Global energy flows are beginning to adjust to disruptions and diversions related to the war in Ukraine and the weaponization of energy supply chains. Discounted Russian fossil fuels are finding customers. European demand is — so far — being fed by new non-Russian and diminished legacy flows (more). Yesterday the WTI benchmark price for oil fell under $100 for the first time since April. (Even as natural gas prices continue to soar.)

In terms of domestic transportation of food, fuel, and more, pipeline capacity has improved. Rail capacity is diminished by congestion (more). The United States currently has more trucks and truckers operating than ever before, but spot market flexibility is starting to be shed under pressure of diesel prices and reduced demand.

It is, of course, much more complicated than this audacious summary. Risks abound. Fresh opportunities beckon. Some consumers are falling off the edge as this is being written, while others are indulging. But right now (early July), right here (continental United States), demand is more doable because there is a bit less of it and because we expanded push capacity trying to fulfill last year’s pull.