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California Turned to Natural Gas as September Heat Wave Strained Grid

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California relied more on natural gas-fired electricity during an intense heat wave that blanketed the state earlier this month, according to the Energy Information Administration (EIA).

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Grid operator CAISO (also known as California Independent System Operator) had to urge customers to cut back on electricity use during an extended period of sweltering temperatures in early September as demand dangerously approached available supply.

The heat wave also drove up the spot prices of natural gas in the region. SoCal Citygate prices next day averaged $15,870/MMBtu on August 31, NGI . Daily Gas Price Index View historical data.

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

As CAISO appealed to customers to conserve electricity to avoid blackouts, the grid operator was simultaneously bringing in more electricity from natural gas-powered sources to balance supply and demand, according to the Energy Information Administration.

Sometimes, this has meant drawing more than half of the electricity from natural gas.

M wrote. EIA analyst Tyson Brown said: “For brief periods during the week of September 4, CAISO used natural gas for up to 60% — not less than 30% — of the generation mix to meet electricity demand.” “California typically uses a mix of solar, wind, import, hydroelectric and natural gas sources to generate electricity,” with the mix varying at different times of the day.

In 2022, before the record demand observed during the recent heat wave, California relied on natural gas for 32% of its electricity, according to the Energy Information Administration.

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

Golden State’s energy mix also included 40% of solar, wind, nuclear, batteries and other sources. According to the agency, imports accounted for 20% in 2022, with hydropower supply at 7%.

“The mix relies a bit more on natural gas during the evening hours of 6-9 p.m., when electricity demand is peak and solar generation is low,” Brown wrote. During the week of September 4, natural gas contributed nearly half of CAISO’s resource mix; nuclear, solar, wind, batteries and other resources accounted for 24%.

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“In California, natural gas units are often the last resource turned on to meet demand because they can be turned on after sunset in the evening when demand for cooling remains high,” the analyst added. This means that during record-high demand, the country has switched to “seldom-used (less efficient, more expensive) natural gas units.”

NatGas continues to ‘bet on her site’

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

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

The Setback Act crossed Newsom’s office along with a raft of other proposals aimed at bolstering California’s climate commitment, the governor’s $54 billion investment package. According to Newsom’s office, the state’s commitment will reduce the state’s consumption of oil by 91%, reduce the use of fossil fuels in buildings and transportation by 92% and reduce refinery pollution by 94%.

However, natural gas appears poised to continue to play a prominent role in the energy pool, at least for the time being.

“There is an expectation of lower demand for natural gas in California,” Wood Mackenzie analyst Quinn Schultz told NGI. “Of course, these expectations are reasonable given the competition between renewables and natural gas, as well as the increased efforts to decarbonise.

The analyst added: “…However, historical data for gas appointments indicate that natural gas will remain important in meeting peak demand in the short term.”

Given the state’s average summer natural gas use over the past four years, the projected downward trend in natural gas demand “did not materialize” except in 2019, according to Schulz.

In fact, using 2017 as a baseline, residential/commercial natural gas demand has consistently increased over this time frame.

“These were increases of up to 10% in 2021 and growth averaged about 3.7% compared to the 2017 averages,” Schulz said. This peak in 2021 can be explained to some extent by the Covid lockdowns driving up demand, but the trend remains. So while there is some downward pressure on natural gas demand growth…it appears that natural gas continues to participate in the energy stack.”

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