The demand for natural gas by the U.S. electricity sector is bound to rise and is driven long-term by renewables, coal and carbon.
This is the assessment of an Aug. 9 Bernstein Research analysis by Hugh Wynne and Francois Broquin.
Facing declining total power demand and surging renewable generation, conventional power generation fell by roughly245 million MWh, or some 6.5% over the five years from 2007 through 2012, according to the Bernstein analysts.
The Bernstein review projects that state-mandated growth of renewable generation will continue through 2020.
“Significantly, the U.S. is, in aggregate, on track to exceed these mandates,” the Bernstein analyst said. “We expect renewable generation to increase by ~90 million MWh from 2011 through 2015 and by ~225 million MWh through 2020. We calculate that this growth in renewable energy will reduce utilities’ use of gas in power generation by ~1.2 bcf/day through 2015, and by a further 1.9 bcf/day between 2015 and 2020,” the analysts said.
But the second half of the decade could see a materially larger increase in utility gas burn if the EPA introduces regulations governing the CO2 emission of utilities’ fossil fuel plants.
In a scenario where the Environmental Protection Agency (EPA) sets a CO2 reduction target of 5% from 2012 levels by 2020 through a cap and trade scheme, “we would expect gas consumption to increase by 4.0 bcf/day,” the Bernstein report said. “A CO2 reduction target of 10% by 2020 could double this figure, causing utility gas burn to increase by 8.1 bcf/day,” the analysts go on to say.
As with other industry observers, Wynne and Broquin predict the biggest loser will be the coal sector.
“We expect the growth of renewable generation to be reflected in a decrease in utility consumption of eastern coal grades totaling 5 million tons in 2015, relative to 2011, and 9 million tons in 2020, relative to 2011,” the Bernstein analysts said. “Similarly, we expect a decrease in western coal consumption totaling 11 million tons in 2015 versus 2011 and 29 million tons in 2020 versus 2011.”
Exerting a positive influence on utility gas consumption will be the surge in coal plant retirements through 2015, in response to the EPA’s increasingly stringent air emissions regulations, and the slow attrition of coal fired capacity thereafter as coal fired units reach retirement age, according to the analysis.
Beyond 2015, the natural attrition of coal plants will further increase gas consumption, the Bernstein analysts said. “We estimate that between 2015 and 2020, an incremental 19 GW of coal plants will be retired due to age. We estimate the output of these plants at 81 million MWh.”
Given the regional breakdown of the retired plants, we would expect this loss of coal fired generation to reduce utility demand for eastern coal by an estimated 13 million tons, measured from 2015 to 2020, and for western coal by 29 million tons over the same period.
The final and by the far the largest potential driver of utility gas consumption is the EPA’s plan to regulate power plant emissions of CO2. CO2 policy will be increasingly important in the latter half of this decade, the analysts note. They add that average CO2 emissions from the U.S. combined-cycle plant is some 60% less than the average emissions rate of the coal fleet, according to the Bernstein analysts.