Chesapeake Energy (NYSE: CHK) CEO Aubrey McClendon, who has been at the forefront of the shale natural gas revolution, boldly predicted April 2 that upwards of 75 GW of new gas-fired capacity would be built by 2015.
McClendon refers to natural gas as the only “scalable and affordable” alternative for new baseload generation. Natural gas from “unconventional” sources like shale has driven down gas prices to 10-year lows. Chesapeake provides 27% of U.S. shale gas development, McClendon told the Platts Global Power Markets conference in Las Vegas.
But other conference participants agreed this latest “dash to gas” could take a while to develop. While most observers agree that coal power is losing market share to natural gas, nothing is going to get built quickly, they caution.
Michael Masters of Barclays Capital doesn’t expect to see many new for deals for new gas plant construction in 2012. It is still far cheaper for a large company to buy an existing natural gas combined-cycle plant than to plan, license and construct one, Masters said.
Masters and other panelists cite a number of reasons why the natural gas power boom could be slow getting started: Power prices are just too low to justify much new construction right now; much of current natural gas capacity is under-used; new pipeline infrastructure will be needed to move gas from new sources to power plants and no one knows exactly how much existing coal-fired capacity will be forced into early retirement.
Numerous participants at the Platts conference said that electric prices are just too weak right now to justify building much new generation. That’s with the possible exception of renewable projects rushing to get online before certain government incentives are suspended, observers said.
Recent U.S. Energy Information Administration (EIA) figures indicate that residential electric prices are less expensive now than in 2009.
Analysis in recent days by the likes of Moody’s and ICF International also lend support that the theory that power market transition to more natural gas will be gradual.
Most coal plants have long-term fuel contracts, many baseload coal plants are not easily disconnected from the grid due to reliability concerns and $2 mmBtu gas is too cheap to sustain a high natural gas rig count.
So the bottom line is that more natural gas capacity is on the way, but it won’t get here overnight.