Natural Gas Execs Discuss Industry Trends, Concerns

Issue 6 and Volume 117.

Justin Martino   By Justin Martino, Associate Editor

Recently, I had the opportunity to moderate a discussion about natural gas-fired generation between executives from Alstom, American electric Power, Bechtel and Electric Power Research Institute. The result was a fast-paced conversation that brought up many issues the industry is currently facing. The discussion was published in the May issue of Power Engineering.

Here are a few key points that came out of that discussion.

Prepared for higher prices

Although recent increases in natural gas prices have created media headlines, people in the industry have been expecting prices to increase and are prepared for it.

Scott Austin, manager of business development for Bechtel’s thermal business line, said that gas-fired power generation would still be the fuel of choice over the mid-term with prices staying in the $5 to $7 MMBtu range, with significant opportunities for new builds in the next two years.

Pricing will affect how plants are operated, however. AEP Vice President of Generating Assets Toby Thomas said at higher prices, natural gas-fired plants would be cycled more often, while plants would be more likely to run at base load constantly when gas is in the $2 MMBtu range.

Recent reports from the U.S. Energy Information Administration support Thomas’ statement. As gas prices have increased from a Henry Hub price of $1.99 MMBtu on April 25, 2012, natural gas-fired power generation has also decreased, producing around 32 percent of the electricity in the U.S. in April last year. That compares to 25 percent in March of this year.

Potential price volatility

Although the industry has prepared for increasing prices, there is concern about the volatility of the pricing of natural gas. Unlike other power generating fuels such as coal, natural gas can be used by multiple industries for a variety of reasons.

“There are a lot of petrochemical refineries and others that can use natural gas, and you could potentially increase demand quite a bit,” Thomas said.

As Thomas pointed it, it wasn’t long ago that natural gas prices were in the double-digit range, and it’s possible that could happen again.

When companies are spending hundreds of millions to build a power plant, uncertainty is a concern, and price volatility is an area being monitored.

EPA concerns

The area of most uncertainty for the industry isn’t pricing, however. It’s the U.S. Environmental Protection Agency.

Thomas said a long-term strategy with the current uncertainty and regulatory structure is “almost an oxymoron” because of changing regulations.

The EPA has recently revised rules, such as the Mercury and Air Toxics Standards, or failed to finalize rules, such as the New Source Performance Standard. Any time a company is planning an investment that could cost up to $1 billion, it needs as much information as possible. With the current climate of rules changing, important information just isn’t available right now.

Advantages of natural gas

Despite potential price volatility and regulatory uncertainty, natural gas-fired plants have many benefits. Several of the executives noted the lower costs to build the plant – usually half of the price of a coal-fired power plant and one-third of a nuclear plant – and the quick dispatch time that allows a plant to be at 50 percent of its capacity in 10 minutes.

Operational costs are also lower as fewer employees are needed at a natural gas-fired plant and the fuel is brought in through a transmission line and not manually loaded.

Gas also burns cleaner than coal, and most modern combined-cycle plants would have met the NSPS regulation without any additional costs.

Not the only option

Despite the advantages of gas, every executive participating had concerns the industry could become too reliant on it as a fuel source for power generation.

“Gas is just an easy decision, and it really concerns me that the industry doesn’t have the flexibility to provide more diversity,” EPRI Vice President of Generation Tom Alley said, who also noted the industry is being led toward natural gas as a “destination” fuel source.”

Overreliance on natural gas could strain the transmission system, causing potential risks to grid reliability. To ensure reliability, companies need a diversified energy portfolio – but the options available for more diversity are currently unclear.

Alstom Vice President – Gas Product Platform Amy Ericson said “it’s pretty scary out there” for the company’s customers, who don’t know whether they can count on nuclear license renewals or plan for coal-fired generation without carbon capture and storage technology. At the same time, she said, “the prospect of only gas and renewable is probably not the best choice” for the industry or the U.S.

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