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Natural Gas Reducing Emissions, Says Report

Low-priced natural gas supplies are a major reason that two key emissions from electric generation plants in the past two years have been reduced in nearly two dozen states affected by the U.S. Environmental Protection Agency's (EPA) cross-state rule for air pollution, according to Bentek Energy LLC.

In the past two years nitrogen oxide (NOx) and sulfur dioxide (SO2) emissions from power plants dropped by 16% and 34%, respectively, in states affected by EPA's Cross-State Air Pollution Rule (CSAPR), according to the Bentek report (see related story). Low natural gas prices have been the enabler for utilities to turn to more use of gas-fired generation and accelerate their approach to compliance with CSAPR.

"A key factor has been the increased use of natural gas with the gas burn up 23% [for power plants] year-to-date from 2011," said the report, noting that scrubbers at coal plants also have helped some in cutting emissions.

Based on a proprietary database developed by Bentek, the firm has determined that 18 of 28 states potentially affected by the EPA's CSAPR have reached compliance for SO2 targets. The database is able to monitor changes in emissions and power plant operations by region, power company and individual plants nationwide, the report noted.

"Low prices from natural gas have helped the power generation industry as a whole meet and beat EPA targets for power plant emissions at least two years before federal pollution regulations would take effect," Bentek concluded, adding that since 2005 the SO2 emissions from power plants have been reduced by 62% and over the same period the NOx emissions went down by 53%.

Separately RBN Energy LLC's Sandy Fielden said earlier this month that in the midst of one of the hottest summers on record nationally, high natural gas demand in the electric generation sector continued to dominate U.S. energy markets. However, how much of this continues when temperatures cool in the fall will depend on the relative price of gas to coal and economic dispatch decisions by grid operators.

In the midst of the all-time record July heat, Fielden noted that there was a two-day stretch in which gas and coal prices were in near equilibrium, but since that time (July 23) when gas prices edged slightly above coal, the gas prices have dropped and coal prices have risen to provide the spread between the two that has been evidenced most of this year.

Fielden called the experience a "close shave," noting that since July 24 gas prices have fallen 11% to $2.83/MMBtu and coal has risen 5% to $59.72/short ton. "Supply-demand fundamentals have provided support to natural gas prices all summer long in spite of major concerns about storage injection hitting the wall. Power burn during a record hot summer has reversed the damage a warm winter did to the storage surplus."

RBN has looked at two indicators: cooling degree days and relative cost of gas to coal. As long as the degree days for cooling stay high, both gas and coal will be called upon by grid operators to keep up with heavy air conditioning demand.

"As temperatures cool down this fall, system operators will have more generation capacity available to meet lower demand and can therefore choose which fuels to use for baseload generation," Fielden said. "It is at this point that the second of the two indicators -- plant fuel costs -- returns to the fore in determining power burn." This underscores the fact that in times when there is a lot of excess generation capacity and demand for power is light, gas costs have to be less than coal for coal-to-gas switching to continue.

Despite an uptick in U.S. gas exports to Mexico where the demand for gas in the power sector is growing, the expected decrease in U.S. domestic power demand will mean a "surge" in gas storage again in the fall, Fielden said. The "2012 power burn sensation" will only continue in the fall if the coal-to-gas switching window stays open. If not, gas storage could fill up before the November start of the winter heating season.

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