U.S. Gas Fired Power Generation Dropped to Four-Year Low in 2021: EIA

Natural gas utilization in the electric power sector, the largest U.S. gas consumption sector, fell by 3 percent in 2021 and inverted four years of annual growth in the sector, according to an Oct. 31 report from the U.S. Energy Information Administration.

Despite the reduction in gas usage for the electric power sector, U.S. gas consumption rose marginally or remained even in all other key sectors. During 2021, U.S. gas usage by both the industrial and commercial sectors increased by 0.2 billion cubic feet per day (bcf/d) and residential natural gas utilization remained flat. Overall, between 2020 and 2021, U.S. natural gas consumption for all sectors was down by 0.5 bcf/d. U.S. natural gas usage in 2019 achieved a record 85.3 bcf/d and has declined year-on-year since, amid reduced economic activity during the pandemic and as of 2021 high U.S. natural gas prices.

U.S. gas prices in 2021 reached record highs, and as a result gas became competitively less competitive compared with goal, with coal prices for electricity generation remaining largely steady in 2021. U.S. gas prices rose, on the back of tighter supply fundamentals and higher demand. Moreover, low gas inventories and production outages contributed to the bullish price sentiment evident in the U.S. gas market throughout 2021.

Higher gas prices in global markets, particularly Europe, stimulated natural gas exports. During 2021, the U.S. exported 30 percent more gas than compared with 2020. The Russian invasion of Ukraine has led to higher U.S. gas demand in Europe. This in turn has led to higher competition for U.S. LNG, with Europe competing fiercely with Asian countries. Accordingly, the price of U.S. gas has increased and led generation assets with a greater incentive to produce, in line with higher profitability margins.

The agency expects gas fired generation to increase by around 5 percent in 2022, due to constraints in alternative sources of generation, which is essentially due to rapidly rising coal prices. Moreover, natural gas consumption is projected to increase by 5 percent, on the back of higher demand across the majority of sectors.