California Turned to Natural Gas as September Heat Wave Strained Grid

According to the Energy Information Administration (EIA), California relied more heavily on natural gas-fired electricity during the extreme heat wave that engulfed the state earlier this month.

Grid operator CAISO (aka California Independent System Operator) had to urge customers to cut back on electricity consumption during a long period of blistering temperatures in early September as demand moved dangerously close to available supply.

The heat wave also caused regional spot prices for natural gas to rise. SoCal Citygate day-ahead prices averaged $15,870/MMBtu on August 31, NGI’s Daily Gas Price Index display historical data.

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

While CAISO appealed to customers to conserve electricity to avoid power outages, the grid operator simultaneously pulled more electricity from natural gas-fired sources to balance supply and demand, EIA said.

Sometimes that meant that more than half of its electricity had to come from natural gas.

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

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In 2022, ahead of the record demand seen during the recent heat wave, California relied on natural gas for 32% of its electricity, according to 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% from solar, wind, nuclear, batteries and other sources. According to the agency, imports accounted for 20% in 2022, with hydroelectricity accounting for 7%.

“The mix relies slightly more on natural gas during the evening hours from 6 to 9 p.m., when electricity demand peaks and solar power generation declines,” Brown wrote. “However, during the week of September 4, 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 resource to be turned on to meet demand because they can be turned on after the sun goes down in the evening when cooling demand remains high,” the analyst added. This means that during record high demand, the state switched to “rarely used (less efficient, more expensive) natural gas units”.

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NatGas continues to ‘take its position’

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

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

The setback legislation landed on Newsom’s desk, along with a series of other proposals designed to bolster the California Climate Commitment, the governor’s $54 billion investment package. According to Newsom’s office, the state’s commitment would reduce the state’s oil consumption by 91%, use of fossil fuels in buildings and transportation by 92%, and pollution from refineries by 94%.

Still, natural gas appears poised to continue to play a prominent role in the power plant, 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 increased efforts to become decarbonised.

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“…Historical data on gas nominations, however, suggest that natural gas will continue to play an important role in meeting peak demand in the near term,” the analyst added.

Looking at the average summer use of natural gas in the state over the past four years, the projected downward trend in natural gas demand “didn’t materialize” with the exception of 2019, Schulz said.

Using 2017 as a basis, natural gas demand for residential/commercial businesses has “consistently increased” over that period.

“In fact, these increases were as high as 10% in 2021 and averaged about 3.7% growth compared to the 2017 average,” Schulz said. “This 2021 peak can be explained somewhat by Covid lockdowns driving demand, but the trend is still ongoing. So while there is some downward pressure on natural gas demand growth, natural gas appears to continue to take its place in the power plant.”

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