PG&E Generating 'Not As Bullish' on Generation Gas Demand
A top official with PG&E Generating last week confirmed what
some, such as FERC, have suspected already - that the increase in
natural gas demand for power generation will not be as great as has
been anticipated for the immediate future.
"Nationally, even in light of various forecasts, we're not as
convinced that there will be a huge increase in electric generation
use for natural gas for the next five or six years. We're not as
bullish as some of the pundits are," such as the Energy Information
Administration and the Interstate Natural Gas Association of
America, said PG&E Generating President and COO Chrisman Iribe
at the 11th annual LDC Forum in Chicago, IL, last Tuesday.
"But nevertheless, what we're looking at is something in the
neighborhood of 80,000 MWs [of new generation capacity], split
roughly 50-50 between baseload and peaking," which would translate
into about 3 Tcf of additional annual gas demand, he told gas
buyers and pipeline executives at the Forum, sponsored by
Interchange Energy Group. That would be about 15 Bcf/d of more gas
demand in the middle of the summer when electricity consumption is
In the New England region (six states except New York), he noted
more than 30,000 MWs of new generation capacity has been "proposed
or talked about." Of that amount, about 5,000 MWs of new capacity
"is in construction, and we don't expect there will be too many
more...because the market frankly doesn't need too many more
facilities." Still, he said 5,000 MWs will require a "substantial
amount of additional gas" - about 750 MMcf/d, which would equate to
250 Bcf per year.
In the Midwest market, "our own estimates show something in the
neighborhood of 27,000-30,000 MWs of new capacity" will be built, a
"significant chunk" of which will be peaking facilities - meaning
they would run only two to three months during the summer. "You're
talking about 2.5 Bcf/d [of] increased demand for brand new peaking
facilities over the next three to four years," and an equal amount
for baseload generation plants, Iribe estimated. The potential hike
in gas demand will be sufficient to keep busy "Alliance or whoever
[is] your favorite new delivery pipeline" into the Chicago area.
PG&E Generating, a major developer of gas- and coal-fired
generation plants, is doing its part, he noted. The company is
building "right now" two key gas-fired facilities in New England,
plans to start construction "in the next three or four months" on
three more plants on the Atlantic Coast and in California, and
expects to start work on two other facilities in Michigan and
Wisconsin next spring, according to Iribe. "All told, my
consumption of natural gas nationwide to make electricity will
exceed 1.5 Bcf/d in four years. We're a major user of gas, and
anticipate that we're going to be one of your best friends."
He said his company favors gas-fired facilities because of the
favorable economics. He estimated it costs PG&E Generating
about $500 per kW to build a gas-fired generation plant, compared
to more than $1,700 per kW for a coal-fired facility. "That
difference in capital --- a huge amount of capital, hundreds of
millions of dollars of capital [that] we don't need to expend for a
gas-fired facility --- puts a huge premium value on natural gas for
us. Gas would have to go up 2 1/2 times at the wellhead to get us
to be willing to [build] coal-fired facilities today," Iribe noted.
Still, he said that PG&E Generating was "in no way afraid"
of coal-fired facilities. He estimated coal presently accounts for
about 60% of his company's fuel consumption, while gas averages
about 20-25%. But that mix will change over the next few years, as
King Coal plays a lesser role. "I'm not sure there's going to be a
huge resurgence of coal, even in existing facilities, as we go
through the next decade or so."
To serve generation plants, Iribe said pipelines and LDCs will
have to deal with the wide swings in their demand. "We have a
facility in New England that we've intended to be baseload that
burns approximately 100 [MMcf/d]," he noted, but added there are
times, even on peak days, when demand can "run down to as little as
20 MMcf of daily use," and then shoot back up to the 100 MMcf/d
level. These "swings within a day [are] something that is very real
to us," and developers are hoping that once new generation
facilities are completed the gas pipelines and LDCs will come and
be able to meet their needs --- it's "sort of like in the [movie],
Field of Dreams."
Iribe said generators also depend on and require more frequent
price signals, as often as every five minutes. "Someone has said
that the electric world is already on the Internet if you think
about the real-time information that we have to play with. And the
gas industry probably needs to join us," he told gas industry
Iribe said power generators and LDCs currently "are really
grappling with [gas] requirements that are fundamentally very
complementary." For instance, "I need gas in the summer," which
won't interfere with LDCs' traditional peak demand in the winter.
"I need gas in the middle of the day. I don't need gas at night.
Most of my facilities are dual fuel, [which means] I can give up
gas for a short period --- a total of 14 to 20 days --- in the
course of a winter season."
He sees natural gas, which traditionally has enjoyed peak demand
only in the winter, evolving into a market with two peak periods to
meet the needs of power generators. But the summer demand of
generators would coincide with the storage injection season to
supply LDCs' traditional winter demand, possibly creating a sort of
tug-of-war between the two factions. "There may be as much demand,
and I guess we saw it this past summer, for natural gas to go into
[gas turbines] as there is to put it into storage" during the
summer for winter use. "I suspect that there may be a better price
for gas converted to electricity than gas stored for wintertime