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US gas futures hit two-year high

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US LNG export feedgas at record high

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US power grids issue weather alerts in Texas and PJM

By Scott DiSavino

Jan 17 (Reuters) - U.S. natural gas demand is on track

to reach a record high next week as extreme cold hits the U.S.,

stressing power grids for a second straight year on the day

after the Martin Luther King Jr. Day holiday weekend.

Gas futures touched two-year highs this week ahead of the

freeze, while spot prices at several hubs across the country

rose to their strongest level since the Martin Luther King

weekend in January 2024. Gas demand hit the current all-time

high that week last year, while next-day prices soared to

multi-year highs.

In recent years, extreme weather has created havoc for power

grids and markets as demand has come close to outpacing supply.

In February 2021, a freeze in Texas killed more than 200 people

and left millions without power, water and heat for days.

Those events were caused in part by a drop in fuel supplies

from freezing oil and gas infrastructure, also known as

freeze-offs. This forced some power grid operators and utilities

to impose rotating outages due to a lack of fuel.

The Electric Reliability Council of Texas (ERCOT), which

operates the power grid for most of the state, issued a weather

watch for Jan. 20-23 due to extreme cold that will boost demand

and potentially lower reserves. ERCOT, however, said it expects

normal grid conditions during a weather watch.

PJM Interconnection, the nation's biggest power grid that

oversees all or parts of 13 states from Illinois to New Jersey,

issued a cold weather alert for Jan. 20-22.

The PJM alert asked power generation and transmission owners to

prepare to call in additional staff and, if needed, defer or

reschedule planned maintenance.

"Generation owners must take extra care to maintain

equipment so that it does not freeze in the cold," PJM told

Reuters in an email, noting it was possible the grid could reach

a new record demand peak for the winter.

During a December 2022 winter storm, dozens of power plants

in PJM and elsewhere were unable to operate for various reasons,

including a lack of fuel after gas supplies were curtailed due

to freezing wells and pipes.

Power plant owners that failed to deliver electricity to PJM

when requested during that 2022 storm agreed to pay $1.2 billion

to settle the grid's non-performance penalties.

Gas provides about 43% of the nation's power generation and

heats about 45% of the country's homes, according to data from

the U.S. Energy Information Administration (EIA). The expected

jump in demand, coupled with a potential drop in supplies, could

drive up power and gas prices next week.

BY THE NUMBERS

Financial firm LSEG said average gas output in the Lower 48

U.S. states fell from 104.2 billion cubic feet per day (bcfd) in

December to 103.4 bcfd so far in January due mostly to

freeze-offs.

Curtailments have been small so far, but analysts noted that

freeze-offs could soar in coming days.

"As peak cold intensifies, it would not be surprising to see

production freeze-offs reach 20 bcfd," analysts at energy

consulting firm EBW Analytics said in a note this week.

In the February 2021 storm that hit Texas and other states,

freeze-offs cut gas supply by up to 20.4 bcfd over roughly a

week, according to LSEG data.

LSEG forecast total gas use, including exports, could soar

to 167.2 bcfd on Jan. 20 and 169.3 bcfd on Jan. 21. If that

happens, demand on Jan. 21 would top the current daily record

high of 168.4 bcfd, hit on Jan. 16, 2024.

One billion cubic feet of gas could supply about five

million U.S. homes for a day.

Adding to total gas demand, the amount of fuel flowing to the

eight U.S. liquefied natural gas (LNG) export plants was on

track to reach 15.8 bcfd on Friday, which would top the current

daily record high of 15.5 bcfd on Jan. 11.