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What’s Coming to Texas in 2022 Electricity Market

The pandemic has been a major driver in fluctuations in the energy market this past year. So what can Texans expect in 2022?

Matt Smith, lead oil analyst at Kpler, joined Texas Standard to talk about key developments, including with renewable energy, that could have big consequences for the Texas economy and the global energy market as a whole.

Listen to the interview with Smith in the audio player above or read the transcript below to learn more about how oil is bouncing back as investments in renewable energy sources continue to grow.

This interview has been edited lightly for clarity.

Texas Standard: What do you see as the highlights and lowlights of 2021, and what are some of the factors we should be thinking of as we ponder 2022?

Matt Smith: We’ve been seeing this demand recovery coming through, and that’s going to be a theme for for next year. But in terms of the immediate factors, you’ve got a really wild situation at the moment in terms of Europe and Asia where you’ve got a cold winter there. And that’s been wreaking absolute havoc on electricity prices there and is actually driving demand for U.S. LNG [liquefied natural gas] as well because they’re pulling that from the U.S. It’s at a record pace there.

But what is interesting is that it’s even driving oil demand this winter in these regions because electricity prices are spiking so high that these utility companies are switching from burning coal and natural gas to fuel oil and gas oil and whatever they can get their hands on just to keep the lights on.

But that’s all actually just juxtaposed with a warm start to winter here in the U.S. And so U.S. natural gas prices are easing lower, which is really important because natural gas prices are the key driver of electricity prices across the U.S. And so lower prices there is good for our utility bills.

And just, finally, we are seeing gasoline prices edging lower here towards the end of the year, but we did actually just see them at the highest price for Christmas on record. So that just shows that they are putting it in context how elevated they are.

What should we be fastening our seat belts for in 2022? Any time we talk about energy, I think a lot of people’s thoughts turn to renewables and whether any of the developments we’ve seen over the past several months might tilt us past that tipping point where the demand reaches that critical mass.

There is definitely that momentum behind renewables at the moment, and we’re set to see them increase by 60% or something like that over the next decade, in terms of that capacity coming online. So that’s going to be a consistent theme through next year, especially with some iteration of the Build Back Better act being passed, which will really kind of propel the investment side of renewables in the U.S.

But in terms of other energy sources and joining the dots back to Texas, you’re going to be seeing the oil market starting in 2022 in much better shape than it was last year – over $70 a barrel. We’re likely to see global demand growth continuing to rebound after the impact of the pandemic, while a big chunk of the supply-growth side of the picture is expected to come from the U.S. and the Permian [Basin] as well. So, higher oil prices is going to be ultimately supporting the Texan economy into next year.

Would higher oil prices mitigate against investment in renewables?

In Texas, you know, more than 20% of electricity generated comes from wind power. And actually, an amazing stat to me is still that if Texas were a country, it would be the world’s fifth largest wind-power producer, which is crazy. But going forward, investment and focus is actually pivoting towards solar power capacity instead. And so growth next year is set to double in terms of capacity to 20 gigawatts and then up to 31 gigawatts in 2023. So the future is is definitely looking bright for Texas solar going forward.