Sizzling U.S. Heat Strains Power Grids, Withers Texas Cotton
(Bloomberg) -- It’s so hot in Texas that the power grid keeps breaking demand records, and it’s forecast to get so warm in California next week that natural gas prices have risen to a nine-year seasonal high.
The Dallas-Fort Worth area shattered a 93-year-old daily heat record Thursday, reaching 108 degrees Fahrenheit (42 Celsius), the sixth straight day of triple-digit temperatures . It could reach 110 degrees Friday, and the heat index could be even higher. Los Angeles is projected to see temperatures above 90 degrees over the next two weeks.
Summer is upending commodity markets around the globe, with extreme heat threatening Nordic grain crops and triggering power failures, cutting China’s electricity supplies and sending Japan’s spot electricity prices to four-year highs. Farther north, sweltering Western Canada is using electricity like it’s the middle of winter. And then there’s Texas.
“It’s insanely hot here,” said Leslie Sopko, a spokeswoman for the Electric Reliability Council of Texas, the state’s power-grid manager. “You can only be outside if you’re in a swimming pool.”
Temperatures ranging from 103 to 110 are possible each afternoon through July 22 in Dallas, according to the National Weather Service. In Houston -- where it’s only in the 90s but poised to climb -- utilities have asked residents to curtail use of household appliances like clothes dryers and dishwashers between 3 p.m. and 7 p.m. local time to avoid rolling blackouts across the nation’s fourth-largest city.
For Dallas, “the high of 110 forecast for Saturday could be a record, too,” Paul Markert, a senior meteorologist at Radiant Solutions, said in an interview. “They won’t see much of a cooloff until Tuesday’s high of 103 degrees.”
Ercot said power demand hit a record 73,259 megawatts across the system during the hour ended at 5 p.m. local time Thursday. Wednesday, it topped a 3-year-old record.
Wholesale prices for electricity secured a day in advance reached three-year highs above $1,500 a megawatt-hour for several hours in the region on Wednesday and Thursday. CME Group Inc. doubled its margins for some power-futures contracts in Texas, effective at the close of business Friday.
Cotton in portions of West Texas, the top U.S. growing region, will face some stress, but temperatures are supposed to ease next week, Joel Widenor, director of agricultural services at Commodity Weather Group in Bethesda, Maryland, said in a telephone interview. Soybeans are more vulnerable to the heat and may be more affected, he said.
A drought is already forcing farmers even in irrigated areas to decide which part of the crop they may have to abandon, Louis Rose, director of research and analysis at Rose Commodity Group in Memphis, said by telephone.
Most U.S. gas demand “will be driven by dangerous heat over the western, central, and southern U.S., focused from California to Texas as highs reach the mid-90s to 110 degrees Fahrenheit,” NatGasWeather.com said in a note Thursday.
Forecasts for sizzling weather have turned Southern California into America’s priciest natural gas market, and the rally may not be over yet. On Thursday, prices for gas delivered to Los Angeles and other cities served by Southern California Gas Co. soared to $13.45 per million British thermal units, the highest since February. Above-normal temperatures will cross much of the West Coast from next week through the end of the month, with Los Angeles readings topping 90 degrees, AccuWeather Inc.’s website shows.
Humming air conditioners have pushed the region’s gas prices to a seasonal record in data going back to 2009, trading at more than double the U.S. benchmark in Louisiana. Though the heat has eased in Southern California after triple-digit temperatures earlier this month, prices are still hitting summer highs.
The reason for the jump: Low rainfall has limited hydroelectric generation, boosting gas demand as pipeline maintenance keeps some supply from reaching the market. Nationwide, stockpiles of the heating and power-plant fuel remain well below normal after a frigid spring. And another Southern California heat wave later this month could send the market soaring again.
“The West is going through this heat snap” and “there are some gas constraints getting into California,” Matthew Hong, director of power and gas research at Morningstar Inc. in Chicago, said in a telephone interview. Sustained heat means “the risk is to the upside” for gas prices, he said.
The surge in gas prices underscores the state’s continued reliance on the fuel for power, even as output from solar and wind climbs. The California grid operator warned in May of possible electrical supply constraints this summer.
Western Canada is experiencing such a hotter-than-usual summer that residents have been using power almost as much as they do in the depths of the region’s frigid winters.
With people blasting air conditioners and fans to stay cool, electricity demand across the power market run by the Alberta Electric System Operator reached a record 11,134 megawatts on Tuesday afternoon. That exceeded last summer’s peak of 10,852 megawatts, according to the provincial grid operator.
Of course, winter is still the bigger driver of power use across the region -- the system’s all-time record demand of 11,697 megawatts came on Jan. 11, according to Alberta ESO.
©2018 Bloomberg L.P.