Bernstein thinks growth in utility gas demand could flatten in 2013

With forward prices for natural gas materially higher in 2013, Bernstein Research expects much of the coal-to-gas switching seen in 2012 to reverse, reducing utility gas burn next year by as much as 3.7 Bcf/day.

This price-related decline in utility gas demand will be largely offset, however, by new gas-fired capacity additions and the scheduled retirement of coal-fired power plants, whose output will likely be replaced by that of the existing gas-fired fleet, the firm said.

“Net of these offsets, we forecast 2013 utility gas burn at ~23.4 Bcf/day, still materially higher than 2011’s 20.8 Bcf/day but down 1.8 Bcf/day from our 2012 estimate of ~25.2 Bcf/day,” the firm said in a Sept. 28 analysis.

The commentary was done by Bernstein analysts Hugh Wynne and Francois Broquin.

The Bernstein analysts noted that there has been significant new natural gas-fueled power generation brought online in the past year.

Additions of new gas-fired capacity have totaled 3.1 GW over 2012 year to date. An additional 2.3 GW of new gas-fired capacity is scheduled to come on-line in 2012 and a further 7.7 GW in 2013, bringing the total gas-fired capacity additions in 2012 and 2013 to 13.1 GW, Bernstein said. 

In the first half of 2012, utility gas demand increased by a third, rising on average almost 6 Bcf/day, the research firm said. But natural gas prices are expected to rise markedly in 2013, eroding the cost advantage that gas power now has in the power market, the firm said.

The much slower growth in utility demand for gas in July and August appears to be directly related to the rise in the price of natural gas that began in April, the firm said.

By July, higher gas prices had sharply eroded the cost advantage of CCGTs (combined cycle gas turbine plants) vis-à-vis coal-fired plants burning Appalachian coal, and completely eliminated the competitive advantage of CCGTs vis-à-vis coal fired plants burning low-cost Powder River Basin coal, the firm said.

Although critically important, utilities’ decisions as to the dispatch of their coal- and gas-fired units will not be the only determinant of utility gas demand in 2013, the firm said. “While higher gas prices will tend to reduce gas fired generation in 2013, we also expect a boost to utility gas consumption from the addition of new gas fired generating capacity and scheduled retirements of existing coal plants.”

The Bernstein firm looked at both U.S. Energy Information Administration (EIA) and private data sources in drafting its exclusive report.

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