Summer power price spikes may have hardly triggered a blip onthe gas spot market last year, but that may not be the case in thenear future. With the expected tremendous growth in gas-fired powergeneration, gas prices are on track to be more closely linked withthe price of electricity than the price of oil, according toCoastal Corp. CEO David A. Arledge.

“The price of gas in the future is likely to be more affected bythe power marketing in the Midwest than by events in the MiddleEast,” Arledge said at the Cambridge Energy Research Associatesexecutive conference in Houston Wednesday. He is one of many in theindustry who predict a 33% increase in gas demand for a 30 Tcfmarket by 2010. “With 60% of the growth in gas demand over this 10-to 12-year period attributable to power generation, gas prices infact will be heavily dependent on the price of power.”

“What is less certain is how gas prices will be influenced bymargins at the power end of the chain,” he said.

And while growing gas demand for power generation would be seenby most as great news, gas processors could have something to worryabout, Arledge said. Without a substantial market for gas liquids,gas processors could find themselves squeezed by the growing gasmarket.

As for pipelines, growing demand is good news, provided thebalance of rates of return and risk is equitable. However, Arledgesaid that balance currently is tilted more to the side of risk. Healso said the growing secondary market for capacity has convincedshippers they no longer need to hold capacity long term. However,FERC needs to recognize the continuing need for long-termcontracts. Otherwise, the pipes won’t get built.

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