Coal, Renewables

All Signs Point to Natural Gas

Issue 9 and Volume 117.

alt   By Russell Ray, Managing Editor

Last month, the closure of another nuclear plant was announced and regulators sued Duke Energy over its coal-fired assets in North Carolina.

Although the construction of new gas-fired generation in the U.S. has been slower than expected, the transition to natural gas is gaining more momentum.

The capacity lost from the closures of Vermont Yankee, San Onofre, Kewaunee, and Crystal River nuclear stations will likely be replaced with natural gas. Meanwhile, the number of announced coal plant retirements and coal-to-gas retrofits continue to rise in the face of low-priced gas and increasing environmental regulation.

What’s more, a lawsuit over coal ash storage operations at 12 coal-fired plants owned and operated by Duke Energy may spawn similar lawsuits in other states. North Carolina regulators are suing the utility for groundwater and wastewater violations at all 12 sites.

The U.S. will be adding 340 GW of generation capacity between now and 2040, according to the U.S. Energy Information Administration. Natural gas will account for 63 percent of the added generation during that period, while coal and nuclear will account for just 3 percent each. The share of total generation from gas will grow from 27 percent in 2011 to 30 percent in 2040.

In addition to low gas prices, the growth of wind and solar power is another factor driving the construction of new gas-fired capacity. The added capacity is needed to balance the increasing load of intermittent wind and solar power.

Meanwhile, natural gas prices remain low at about $3.50 per mmBtu.

“Our coal plants are not operating as baseload plants in many places across the country,” said Keith Trent, executive vice president and chief operating officer of Duke Energy. “Four years ago, we were all projecting that gas prices were going to be $6 to $8 per mmBtu. At that level, coal looked good and nuclear looked good. But that’s not the case today.”

A scan of last month’s news at reflects the growth of gas-fired generation in the U.S. marketplace:

  • Southern Power and Panda Power announced plans to build gas-fired plants in Texas and Maryland, respectively.
  • Siemens received a $400 million order for two gas turbines for a new combined cycle plant in Pennsylvania.
  • Fluor Corp. received full notice to commence construction of a 1,358-MW combined cycle plant in Virginia.
  • Invenergy said it wants to build a $500 million natural gas plant near Jessup, Pa.
  • NRG Energy completed its repowering and modernization of the 550-MW gas-fired El Segundo Energy Center near Los Angeles.
  • Gemma Power Systems signed an engineering, procurement and construction contract to build an 800-MW gas-fired plant in Pennsylvania.

In the past, a spike in gas prices would have killed plans to build a new gas project in the U.S. The circumstances have changed significantly.

Today, a sharp spike in gas prices would not stop the growth in new gas projects because of ever increasing regulation of coal-fired plants, a proliferation of state standards for the production of renewable power, and a generous supply of natural gas from shale. For baseload capacity, there really is no other option for power producers, thanks to the EPA.

The transition to natural gas will continue, even in the face of higher gas prices and potential regulation of gas producers.

According to the EIA, the U.S. has a 100-year supply of gas reserves. I think the nation’s true supply of gas is well below the EIA’s lavish estimate,. Still, the nation’s gas supplies are large enough to justify the construction of more gas-fired capacity.

But the natural gas market remains volatile because of the way the commodity is traded. The growth of speculative hedge funds, energy traders and automatic trades can cause a lot of volatility. More traders, with no official connection to the producer or consumer, are buying gas and immediately selling it at a profit.

Although the nation’s dependence on gas is sure to grow, it is not good for the U.S. The nation’s growing dependence on natural gas is the result of bad public policy. If you have a question or comment, please contact me at [email protected].

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