Natural gas could take as much as two-thirds of the market for new power generation over the next 20 years, including load gains from the retirement of more than 50 GW of coal-fired power generation capacity, according to the 1Q2011 Integrated Energy Outlook produced by research and consulting firm ICF International.
The increase could amount to an additional 1 Bcf/d annually. Older, smaller coal-fired plants that would cost too much to retrofit will likely fade away as the Environmental Protection Agency (EPA) implements rules to carry out the Clean Air Transport Rule (CATR), the Air Toxics Rule, coal combustion residuals, and cooling water intake structure standards. The 50 GW that could be lost is about one-sixth of the 316 GW capacity in the United States, according to Chris MacCracken, a principal with ICF.
Not all that capacity is actually in regular use and newer, more efficient coal-powered units could take up some of the slack. But the report estimates that natural gas will pick up about two-thirds of the new market, which includes both the coal plant retirements and the increased power demand that accompanies economic growth. The other one-third of nameplate capacity will go to renewables such as wind and solar power, said Kevin Petak, also a principal with the Fairfax, VA-based firm.
With all this increased demand gas prices will climb from the $4 to $5/MMBtu area that ICF sees in the short term to $5-6/MMBtu over the longer term. "That's significantly higher but not in the $10 range we've seen before," Petak said. "And it will be a slow progression as electric load picks up at a more uniform and slower pace of growth."
It's not just the price. Volatility is important to gas customers, Petak pointed out, saying volatility has been much lower over the past two years, both in absolute and percentage terms. The low prices and low volatility have recently been drawing ammonia and other chemical manufacturers back to U.S. shores. "Prices in the U.S. now are lower compared to other parts of the world and it does make sense building new plants here. We're starting to see a rebound of the petrochemical industry, which was killed off in the middle part of the prior decade."
Given the variables of weather and economic activity, it's hard to say whether natural gas price volatility will remain low. "There's one fact that argues for lower volatility," Petak said. "It's all those uncompleted wells." He estimated there are between 2,000 and 4,000 uncompleted wells, which could be brought online if prices go higher. Some were drilled simply to hold leases and have been put on hold while companies concentrate their capital on other areas.
Some wells are awaiting hydraulic fracturing crews, which are very much in demand, particularly for oil fracking, Petak said. And some completions, particularly in north central Pennsylvania, are held up because infrastructure has not kept up with the rapid development. "Tennessee is fairly full now, with forward [hauls] and backhauls." If prices go up, companies would have more of an incentive to complete the wells and support new infrastructure.
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