Given the recent media focus on AI and the surge of data center construction, it comes as no surprise that the electric utility industry’s capital investment has risen to record highs. What isn’t as widely publicized is the enormous strain this historic expansion has placed on utility balance sheets.
As U.S. electric utilities become increasingly dependent on natural gas-fired power, they’re looking for ways to mitigate the risk of future gas-price volatility. One hedging option that’s gained some attention lately is direct utility investment in natural gas production assets, the idea being that by acquiring gas-in-the-ground—especially now, when gas prices seem low and many financially strapped gas producers are eager to make deals—utilities can lock in the price of at least part of the future gas needs. Today, we consider the latest efforts by electric utilities to expand their gas hedging strategies—and hold the line on future gas prices—by including direct investments in gas production assets.
Last year natural gas power burn increased by 6 Bcf/d over 2011. This year power burn levels in the first quarter were down 10 percent from 2012. Peabody Energy reported last week that coal consumption for generation is growing this year versus 2012. Today we ask whether 2012 power burn was an anomaly and what we should expect in 2013.
