By Daniel Whitten
One could be forgiven for asking whether Luminant’s decision to restart coal plants three months early is good short-term strategy, but it certainly does not represent long-term market dynamics in regard to natural gas pricing.
No question the cold weather that swept across America last week caused a short-term bump in prices, but those companies that are covered by contracts did not feel that bump. Luminant appears to be banking on continued cold weather and sustained higher gas prices, even as prices have dropped again this week. The fact is that low and stable natural gas prices have kept people’s heating bills in check this winter, compared to years past.
The FuelFix post Tuesday on Luminant’s decision didn’t address the difference between short term prices and the relative stability of gas prices that exists. Luminant’s citing of a rise in gas prices from historically and unsustainably low prices shows that it may not have accounted for a market dynamic that every company in the country has anticipated, a slight uptick in price. This is not the first time Luminant has bet against gas.
The USA, led by Texas, has the largest natural gas supplies in the world, and those abundant supplies keep natural gas prices steady and affordable. The arctic blast last month created the highest demand for natural gas ever, but the price of natural gas was still only about $5 per million British thermal units. That would not have been the case five years ago, when prices approached $13 per million Btu.
Interestingly, Luminant’s decision to restart its plants early proves the point that the current energy-only electricity market is working and moving to a capacity market now would only be a solution in search of a problem.
When Americans across the nation simultaneously turn up thermostats, demand for electricity also increases. Yes, natural gas prices have increased due to such large gas loads and gas prices do impact electric prices; however, the recent short-term electric price increases in Texas are overwhelmingly due to extremely high electric loads, not gas prices. Companies that have planned for weather variations will continue to use clean, abundant and affordable Texas natural gas. Those that don’t may get burned.
Daniel Whitten is senior director of communications for America’s Natural Gas Alliance.