The big story remains natural gas

No matter what the power industry headline these days, it seems the story behind the story is natural gas.

It’s a busy news cycle for the electricity trade press: Coal-fired utilities are howling about the new carbon dioxide standard from EPA and the nuclear sector is excited at the thought of NRC approving its second new nuclear plant license this quarter.

The idea of new reactors being built again in the United States seemed just a dream not so long ago for the nuclear industry. Likewise, coal interests see CO2 limits on new power plants as a bad dream until someone can commercialize carbon capture and storage.

Finally, renewable energy advocates warn their market could stop growing if certain government incentives run out.

But the biggest influence on everything else remains the abundant supply of cheap North American natural gas. Natural gas futures fell to a 10-year low on March 29 to $2.149/mmBtu, the Wall Street Journal reported.

With gas this cheap it’s tough to justify investing hundreds of millions of dollars to retrofit an aging coal plant with sulfur dioxide scrubbers. With gas this cheap it’s tough to sell company shareholders on spending billions of dollars to build a new nuclear plant.  

It would also seem that if a company can curb CO2 emissions 45% by simply dispatching a 1,000-MW combined-cycle gas plant rather than a 1,000-MW pulverized coal plant then that’s got to have an impact on renewable energy expansion.

If America’s de facto energy policy is to do whatever is cheapest then natural gas is in a strong position.

Bernstein Research noted March 30 that utility consumption of natural gas has grown dramatically of late despite unseasonably warm weather that decreased annual power demand.  “With forward gas prices for April and May below $2.20/mmBtu, the economic incentive to substitute gas for coal-fired generation has only increased,” Bernstein noted.

“We expect the scale of coal to gas switching by the U.S. power industry to accelerate in the spring months,” according to the Bernstein report by senior analyst Hugh Wynne. Nationally, the nation’s combined-cycle gas power fleet is still underused. That means more coal-to-gas switching is possible, the firm said.

Bernstein is far from alone on this issue.

John Rowe, one of the nation’s longest-serving power company executives, prior to retiring from Exelon (NYSE: EXC) in March, said recently he expects natural gas to remain inexpensive for years. Rowe, who ran the nation’s largest nuclear fleet, thinks cheap shale gas will revamp the power industry. Rowe made his comments during Energy Central’s EnergyBiz Leadership Forum in Crystal City, Va.

BP Capital Management Chairman T. Boone Pickens calls natural gas a game changer. Pickens told a Wall Street Journal conference that natural gas can help replace diesel fuel for transportation. In fact, Pickens envisions natural gas becoming the transportation fuel of choice for many fleets of U.S. vehicles.

Natural gas is already claiming a growing percentage of the power sector. if we ever get to the point where a large portion of the U.S. transportation fleet is fueled by natural gas, would we still be writing about “cheap natural gas” for power plants?

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.