Wood Mackenzie is projecting that Texas will see a major drop in energy demand through 2021 in the wake of the economic impact of the coronavirus pandemic. Peak power demand will be 4.6 gigawatts off the original expectation this year, and 2.1 gigawatts lower in 2021.
In the best-case scenario, the WoodMac analysts hope economic growth will bounce back strongly in 2021, helping drive energy demand. However, they warn that a more pessimistic scenario, in which the coronavirus can’t be controlled and restrictions on trade and movement are imposed by governments, could lead to energy companies suffering losses through 2023.
The Electric Reliability Council of Texas (ERCOT) agrees with the WoodMac outlook and has revised its peak projection for this summer. Even so, it expects energy usage to reach a record high over the coming months. Compared to last summer’s peak of 74,820 megawatts, ERCOT estimates that demand over the summer months in 2020 will hit 75,200 megawatts.
“There is a lot of uncertainty in today’s world, but we are confident that Texas will still be hot this summer,” comments Bill Magness, ERCOT’s CEO and president. “Texans will need electric power as they do every summer, and ERCOT is prepared to do our part to keep it flowing reliably.”
A combination of the decline in overall demand and the earlier than expected connection of seven new energy projects to the grid have impacted ERCOT’s predictions. ERCOT has a planned energy reserve of 12.6 percent for the summer. The reserve refers to the amount of capacity the grid has compared to the estimated peak demand. Last summer, the margin collapsed as wind power failed to provide as much energy as expected.
The seven new projects, most of which are wind and solar facilities, will add 979 megawatts of capacity to the grid.
Early indications show that natural gas will strengthen its position as the leading source of power for the state this summer, notwithstanding the overall drop in demand. At the beginning of June, power generators increased gas burning to record levels for the time of year.
On June 5, an estimate suggested that gas burning reached an early June record with an average of 6.2 billion cubic feet per day. This May, the average was 4 billion cubic feet per day, down from 4.8 billion in last year due to the pandemic. “Historically low prices at downstream hubs across the state are making gas the fuel of choice for generators looking to compensate for lower wind output,” notes S&P Global in an analysis.
However, the slowdown in the oil sector will also affect natural gas usage. Lower levels of oil production mean that natural gas production, which is often a byproduct of oil extraction, will also decline. The increased burning of gas over the summer, coupled with an expected revival of energy demand later in the year, has analysts projecting a spike in natural gas prices. It remains to be seen whether this will lead to a drop in the share of natural gas in the Texas energy mix.
According to the latest edition of the Energy Information Administration’s Short Term Energy Outlook, average US oil production for 2020 will drop by 0.5 barrels per day compared to 2019 levels to 11.7 million barrels per day. A further decline of 0.8 million barrels per day will take place in 2021. On the bright side, the EIA projects that the decline in output will help lead to an increase in oil and gas prices during the second half of the year and into 2021.
Christi Craddock, a commissioner on the Texas Railroad Commission, admits that the oil industry will have a tough time over the coming months. “This is going to be painful. … How do you get demand back up where people are comfortable driving, comfortable flying, still moving forward, and how do we continue to make sure we’re doing the smart thing so business has an ability to come back? I think consistency is going to be really important,” says Craddock.
For Wood Mackenzie, oil demand may struggle to return to its pre-pandemic levels any time soon. A study released in May described COVID-19 as having “a lasting impact on energy demand, which could persist for decades. Oil demand in particular is at risk, potentially taking years to regain its levels before the pandemic and growing only slowly thereafter.”
Jordan Smith is a freelance journalist and translator covering issues related to energy, the environment, and politics. His work has appeared on the independent news site Opposing Views, and at the Canadian Labour Institute.