What Was Up With 2022's Wholesale Electricity Prices? // Shell's Stalled Transition // Biden Administration Ponders Gas Stove Ban
What Was Up With 2022's Wholesale Electricity Prices?
American wholesale electricity prices were volatile last year--and they were high. Compared to 2021, prices in every region except Texas were higher in 2022. Winter storm Uri in February of 2021 saw wholesale prices hit $1,800 per megawatthour (MWh), a difficult record to beat.
Here's what happened elsewhere in 2022, according to the Energy Information Administration.
In January 2022, cold temperatures and a winter storm caused New England wholesale electricity prices to rise, averaging $160/MWh in ISO-New England that month. New England lacks pipeline infrastructure despite its proximity to the Marcellus shale formation. Pipeline constraints play a role in price hikes when the winter weather gets tough.
In July, a heatwave in Texas created record-breaking electricity demand in ERCOT. Wind generation, an important source of electricity in Texas, provided less electricity than usual for several days during the heatwave due to low wind speeds. Wholesale prices at the ERCOT North trading hub averaged $182/MWh that month. Not quite Uri-sized prices, but high nonetheless.
In early September, a heatwave blanketed the western United States, inspiring record-breaking electricity demand. "The price increases started in the Northwest, where the Northwest Mid-Columbia market hub’s whole electricity price averaged $224/MWh that month," reports the EIA. "In California, expensive natural gas-fired generation increased in the electricity generation fuel mix during the heatwave, resulting in higher electricity prices. In the CAISO region, the grid operator for California, the wholesale electricity price averaged $134/MWh that month."
Lastly, cold weather and winter storms swept through the Western Pacific regions of the United States, leading to record-high electricity prices in December at the Northwest Mid-Columbia market hub ($283/MWh) and at the CAISO N-15 hub ($257/MWh). "Colder weather increased electricity demand, which increased natural gas-fired generation," reports the EIA. "The cold weather, along with supply constraints, caused natural gas spot prices in the western hubs to rise to about 10 times those at Henry Hub, the national benchmark price."
Indeed, natural gas has become a prime driver of wholesale electricity prices. Since the early 2000s, combined cycle gas turbines have grown to about 40% of American electricity generation. Because CCGTs can ramp up to meet demand, their output has become indispensable in America's restructured electricity spot markets. But natural gas is often the highest-cost fuel for electricity generation, and so it sets prices for the hours that natural gas-fired generators run.
So, what increased the price of natural gas last year? "In January 2022, natural gas prices continued an upward trend driven by economic growth in Asia and constraints on pipeline and liquefied natural gas (LNG) exports to Europe from Russia," the EIA reports. "High international demand for natural gas increased U.S. LNG exports, causing natural gas prices to rise for domestic customers. Natural gas prices rose from $3.70 per million British thermal units (MMBtu) in early January 2022 to almost $10.00/MMBtu in late August 2022." Winter weather brought prices back up again after a brief autumn respite.
But weather's not the whole story: railroad and coal mine labor shortages also constrained coal supply and delivery to power plants throughout the summer, the ability to switch from relatively expensive natural gas to cheaper coal-fired generation.
Shell's Stalled Transition
Shell held talks with Harbour Energy to sell its Norwegian oil and gas fields last year. The companies were unable to reach a deal due to gas price volatility and uncertainty over the long-term outlook.
Shell wants to get out of the hydrocarbon business and into the energy transition. The company plans to focus its oil and gas operations in nine basins around the world, gradually reduce its oil and gas output, and grow renewables and low-carbon operations. "A sale of Shell's oil and gas portfolio in Norway, where it has been for more than 110 years, would mark a continued retreat from the North Sea by the world's largest energy companies which are focusing investments on newer, more profitable basins," reports Reuters.
The talks with Harbour Energy, the largest British North Sea producer, reached an advanced stage towards the end of 2022. Shell's assets in Norway and small-scale operations in Italy and several aging assets in the British North Sea were on the table.
Will the deal continue?
"Shell's new chief executive Wael Sawan, who succeeded Ben van Beurden on Jan. 1 after his nine year tenure, is not currently reviewing these assets," reports Reuters. "Shell's annual report shows it held stakes in 21 Norwegian oil and gas production licences at the end of 2021, including a 17.8% stake in Ormen Lange, a 45% stake in the Knarr field and 8.1% of the Troll oilfield."
Biden Administration Ponders Gas Stove Ban
The US Consumer Product Safety Commission is considering a ban on gas stoves due to rising concerns about the harmful indoor air pollutants they emit.
“This is a hidden hazard,” Richard Trumka Jr., an agency commissioner, said. “Any option is on the table. Products that can’t be made safe can be banned.”
"Natural gas stoves, which are used in about 40% of homes in the US, emit air pollutants such as nitrogen dioxide, carbon monoxide and fine particulate matter at levels the EPA and World Health Organization have said are unsafe and linked to respiratory illness, cardiovascular problems, cancer, and other health conditions, according to reports by groups such as the Institute for Policy Integrity and the American Chemical Society," reports Bloomberg.
The CPSC plans to open public comment on hazards posed by gas stoves later this season. Options for action include setting standards on gas stove emissions or banning the manufacture or import of gas stoves. This move comes as states and local policymakers are also targeting the use of natural gas in buildings more broadly to reduce carbon emissions.
"Consumers who want to switch from gas to electric ranges could get some help from the massive climate spending bill signed into law in August," reports Bloomberg. "The Inflation Reduction Act includes rebates of up to $840 for the purchase of new electric ranges as part of some $4.5 billion in funding to help low- and moderate-income households electrify their homes."
A massive shift to electric stoves would compound demand on an electric grid strained by overbuilding wind and solar--two technologies massively incentivized by the IRA. Research on the dangers of gas cooking cited by both Bloomberg and E&E News is a recently published meta-study without an available data set or code and underwent only a brief time under peer review. It is co-authored by a member of the Rocky Mountain Institute, an anti-nuclear environmental organization.
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- The Environmental Protection Agency is proposing tighter particulate matter standards, which may impact coal plants. "In a move that could add to regulatory requirements for coal-fired power plants, the Environmental Protection Agency on Friday proposed tightening the primary annual air quality standard for fine particulate matter, called PM 2.5, to a range of 9 micrograms per cubic meter to 10 µg/m3 from 12 µg/m3," reports Utility Dive. "The EPA is also seeking comments on lowering the decade-old standard to 8 µg/m3 or 11 µg/m3. A final decision on where to set the limit will be based on the comments the agency receives, EPA Administrator Michael Regan said in a press briefing. The agency aims to make a decision in August."
- A remarkable turnaround on Belgium's endangered nuclear plants has just occurred. "Belgium has agreed a deal with French energy firm Engie on extending the life of two nuclear reactors for a decade, the two sides said on Monday. Brussels in March had announced it was delaying its long-planned exit from nuclear energy in 2025 for 10 years as Russia's war on Ukraine sent power prices soaring," reports TechXplore. "The accord with Engie comes after months of fierce negotiation with the Belgian authorities over key questions such as how to set up the joint venture running the reactors and capping costs for the disposing of nuclear waste. Engie said the 'agreement in principle constitutes an important step, and paves the way for the conclusion of full agreements in the upcoming months.'"
- Here's a remarkable chart from Bloomberg's Javier Blas.
CHART OF THE DAY (the Pinocchio🤥 edition):
I have updated this unbelievable chart showing Chinese imports of 'Malaysian' oil. If you trust Beijing, it means that China imported a record ~1.2m b/d of oil from Malaysia in November, double the country's output of ~0.6m b/d | #OOTT
— Javier Blas (@JavierBlas)
Jan 10, 2023