We’re smack dab in the middle of summer, and the heat doesn’t look to be letting up anytime soon. The Electric Reliability Council of Texas, the state’s grid operator, has called several times for Texans to conserve power to avoid rolling blackouts. On top of that, many customers have seen higher than normal electricity bills.
Between that and high gas prices, it’s been a tough summer for energy prices, especially for consumers. For a closer look at the factors at play, the Standard spoke with Matt Smith, lead oil analyst for the Americas at Kpler. Listen to the interview above or read the transcript below.
This transcript has been edited lightly for clarity:
Texas Standard: Where do we stand with current conditions in context? We’re, technically speaking, past what a lot of people consider to be the halfway mark of summer. How do you evaluate the electricity picture?
Matt Smith: Well, let’s just put this in context. So it has been the hottest July on record for Texas. You know, these scorching temperatures have caused the Texas power grid to reach a record. So they have surpassed 80,000 megawatts of demand for the first time ever. And as you say, you know, we’re halfway through, but we’ve still got the whole of August to go yet. But that said, while calls for consumers to conserve power have been a common message, really rolling blackouts have been threatened but have not yet been implemented. So at least for now from ERCOT, the message from them, they expect that there is sufficient generation to meet forecasted demand.
That’s pretty remarkable unto itself. I think a lot of people were quite concerned, especially after what happened with the winter of 2021. Are there signs we’ll make it through August OK? That’s typically the hottest month of the summer.
Well, the signs are good. You know, there was the concerns back in, you know, just in June as as temperatures started to increase. But given how things have been OK as we’ve hit record demand so far, it seems that we may be able to get through unscathed here.
It’s interesting when it comes to the prices at the pump – it seems like they have been going down. What’s behind that?
Yeah, absolutely. So the prices on the national average have dropped 40 days in a row from the record just above $5 a gallon in mid-June. So in terms of Texas, they’re down to $3.86 from about $4.70 a gallon at the peak there. So that’s a huge improvement. We may see them edging a little bit lower going forward here.
The reason for the turnaround has simply been the drop in oil prices. So despite all the supply concerns relating to Russia, fears of a recession and the lower demand that that would bring has caused a swift sell off in oil to bring us back below $100 a barrel, at least on the U.S. benchmark there. And that is really encouraging gas prices lower.
So it’s not so much that demand has been curbed, but some of these macroeconomic pressures are affecting the broader marketplace.
Yes, exactly. We have seen demand being hit a little bit, but the key driver has been the drop in oil prices.
I know technically we are in hurricane season, but things can get really rowdy out there in the Gulf of Mexico come August and September, as many Texans know. What are the expectations?
So we were expecting an above normal hurricane season as we’re entering it here. And although we’ve had a couple of potential formations just before this weekend, things have been relatively quiet. You know, we’ve only had three named storms. We’ve had Alex, Bonnie and Collin and no hurricanes as yet. But as you say, we can’t get complacent because the activity really ramps up in the second half of August with the peak of hurricane season in early September there. So we’re likely still to see potentially six to 10 hurricanes forming before the season is over here.