Everything is outsized in the Lone Star State. Summer temperatures are no exception.
As Texas’ heat broke past 105 degrees Fahrenheit this summer, so did energy demand, dragging prices higher.
But what happens in Texas doesn’t only stay in Texas.
The harsh weather it’s facing can forecast what’s to come for energy prices everywhere…
That’s because Texas accounts for about 12% of America’s total electricity generation per year.
In 2022, Texas produced more energy than any other state. Breaking that down, Texas is responsible for 43% of U.S. oil production, 25% of U.S. natural gas, and 26% of U.S. wind-powered electricity.
The diversity of Texas’ energy portfolio makes it a leader in energy production and distribution. That puts it at the forefront of our energy needs today and in the future.
So far, energy prices are still about three times lower than they were this time last year. That’s because of increased energy reserves in the U.S., a milder winter than anticipated, and stronger European energy stockpiles.
But rising temperatures increase the demand for energy.
And that will push energy prices up, spelling an opportunity for investors who know where to look…
Rising Demand Forecasts
I’m not the only one who sees energy prices going higher.
Oil and gas industry executives expect energy prices to rise through the end of the year.
The Energy Information Administration (EIA) also expects energy prices to keep rising over the summer. That’s due to:
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Production declines.
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Heat increasing the demand for air conditioning and electricity.
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International demand for U.S. energy exports following geopolitical disruptions in global supply.
The ongoing war in Ukraine will impact Europe’s energy sector yet again. You see, disruptions in oil and gas supply chains are pushing prices upward globally.
Prices are also rising because of greater electricity demand during peak summer hours. That extra demand – like the increased usage of A/C – places a greater strain on electric power and the electric grid.
And it’s not just hot in the U.S. The world recorded its hottest day ever this July.
Such trends will drive increasing energy demand. This, in turn, will elevate prices.
And that all starts and ends with Texas. Let me explain…
Extra Pressure on the Electric Grid
Texas consumes more energy than any other state.
With a population of 30 million people, or 9% of the U.S. total, it’s easy to see why.
Just this week, a second major heat wave hit Texas. It pushed demand on the power grid to record highs.
For example, the forecasts for this week’s power demands are breaking record numbers. And they’re already higher than the all-time peak demand previously forecast for Texas this summer.
That’s pushing the annual forecast for total energy demand higher, too.
Now, the Texas electric grid only generates enough power to meet anticipated customer demand. That’s all good if demand is predicted accurately.
But if it isn’t, that could leave the grid underprepared. East Texas is a case in point. Last month, certain areas lost power for days after tornadoes obstructed transmission lines.
In Harrison County, 25,000 people sweltered with no power as the heat index rose to 104. Even a local power outage, like in East Texas, could be deadly during a severe heat wave.
It’s why Texas received $60 million in federal funds from the Inflation Reduction Act to strengthen its power grid against extreme weather.
But it takes time to fix grids. In the meantime, extra demand due to the heat will push energy prices up.
And rising temperatures are here to stay…
Global Heat Records
An earlier-than-usual El Niño pattern could make this summer’s heat worse.
According to AccuWeather, these patterns create months-long warming behavior. That means more demand for electricity and the resources powering it.
El Niño has already caused water temperatures to rise along South America’s west coast. And it’s now heading toward Europe and the northeastern coast of China. This can lead to higher temperatures in Asia and new global temperature highs.
In fact, the University of Maine’s Climate Reanalyzer just noted record worldwide average temperatures last week.
That means a potential boom in global demand and competition for U.S. energy supplies. This, in turn, could ignite energy price rallies.
And Texas is in prime shape to benefit from the growing need for more energy production and distribution.
Tomorrow, I’ll talk about why Texas has a unique position to supply the country and world with energy, and how you can position yourself to profit from that trend…
Stay tuned for more.
Regards,
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Nomi Prins
Editor, Inside Wall Street with Nomi Prins