California has turned to natural gas as a tight grid for the September heat wave

California leaned more on natural gas-fired electricity during the extreme heatwave that hit the state earlier this month, according to the Energy Information Administration (EIA).

Grid operator CAISO (aka California Independent System Operator) had to urge customers to reduce their electricity consumption during a long period of sweltering temperatures in early September as demand came dangerously close to available supply.

The heatwave also sent spot natural gas prices in the region skyrocketing. Day before SoCal Citygate prices averaged $ 15,870 / MMBtu on Aug 31, NGI Daily Gas Price Index show historical data.

Driven by the use of air conditioning, demand in CAISO’s territory peaked on September 6, setting a new record in the process, according to a research note published this week by the EIA.

As CAISO urged customers to conserve electricity to avoid continuous blackouts, the grid operator simultaneously withdrew more electricity from natural gas-fired sources to balance supply with demand, according to EIA.

At times, this meant extracting more than half of its electricity from natural gas.

“For short periods during the week of September 4, CAISO used natural gas up to 60% – and never less than 30% – of the production mix to meet the electricity demand,” wrote EIA analyst M. Tyson Brown. . “California typically uses a mix of solar, wind, imported, hydro and natural gas sources for electricity generation,” with the mix varying at different times of the day.

In 2022, before the record demand seen during the recent heatwave, California relied on natural gas for 32 percent of its electricity, according to the EIA.

[Want today’s Henry Hub, Houston Ship Channel and Chicago Citygate prices? Check out NGI’s daily natural gas price snapshot now.]

The Golden State’s energy mix also included 40% of solar, wind, nuclear, batteries and other sources. Imports accounted for 20% in 2022, with hydroelectric supply up 7%, according to the agency.

“The mix relies slightly more on natural gas during the evening hours of 6pm to 9pm, when electricity demand peaks and solar production falls,” Brown wrote. “During the week of September 4th, however, natural gas contributed nearly half of the resource mix in CAISO; nuclear, solar, wind, batteries and other resources fell to a share of 24%.

“In California, natural gas units are often the last resort turned on to meet demand because they can be turned on after dark in the evening when cooling demand remains high,” the analyst added. This means that during record demand, the state turned to “rarely used (less efficient, more expensive) natural gas units.”

NatGas continues to “take its stand”

Despite this high natural gas consumption trait, it would be fair to say that California is not a fossil fuel-friendly state.

Just last week, California Governor Gavin Newsom signed a bill to increase the minimum required distance between oil and gas operations and public and private ownership.

Setback legislation crossed Newsom’s desk along with a flurry of other proposals intended to strengthen the California Climate Commitment, the governor’s $ 54 billion investment package. According to the Newsom office, the state commitment would reduce the state’s oil consumption by 91 percent, reduce the use of fossil fuels in buildings and transportation by 92 percent, and reduce refinery pollution by 94 percent.

Even so, natural gas looks poised to continue to play a leading role in the power stack, at least for now.

“There are downward expectations for natural gas demand in California,” Wood Mackenzie analyst Quinn Schulz told NGI. “Of course, these expectations are reasonable given the competition between renewables and natural gas, as well as the increased efforts towards decarbonisation.

“… However, historical data on gas appointments suggests that natural gas will remain significant in meeting peak demand in the short term,” the analyst added.

Looking at the state’s average summer natural gas consumption over the past four years, the expected downward trend in natural gas demand “hasn’t materialized” except for 2019, according to Schulz.

Indeed, using 2017 as a benchmark, residential / commercial demand for natural gas has “steadily increased” over that time frame.

“These increases were as much as 10% in 2021 and recorded an average growth of around 3.7% compared to 2017 averages,” said Schulz. “This peak in 2021 could be somehow explained by the Covid blockades pushing demand higher, but the trend still remains. So while there are some downward pressures on growing demand for natural gas … natural gas appears to continue to play its position in the power stack. ”

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