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Sun, Wind Screening Out Western NatGas-Fired Power Prospects

A group of analysts on Tuesday threw a wet blanket on the chances of growth in natural gas-fired generation in the West, particularly California, blaming it on the sun and the wind.

The trio of analysts on a supply/demand panel at the LDC Gas Forum Rockies & the West in Los Angeles were not enthusiastic about the chances for a U.S. West Coast LNG export project being built. Storage also has "diminished importance," said Genscape Inc. senior analyst Rick Margolin.

"With the availability of abundant supplies and takeaway capacity throughout the producing area, storage is less relevant," said Margolin, adding that storage "does have some importance in areas like California that are not benefiting directly from the shale boom."

Margolin said “there is a serious question about whether we need storage to the extent we have historically, now that we have de facto storage in the form of robust production.” And he echoed other panelists in noting that “there are serious questions about load growth in California."

In the West, net energy demand for electric generation is "trending down" overall, said SNL Energy research director Steve Piper. He said this includes hydroelectric power supplies going down proportionally and the natural gas share of the power market staying flat. Filling the gap are increasing solar and wind power supplies, he said.

In the last four years, the California Independent System Operator (CAISO) has reduced its peak demand forecasts, according to Piper. He said it was cut by about 2 GW in part because of an estimated 12 GW of new renewable construction. As part of the mix, CAISO also is forecasting 8 GW of thermal (mostly gas-fired) generation retirements because of state restrictions for water-cooled coastal plants.

There is a future for flat demand growth in the West because a lot of new capacity for generation is from renewables, said Bentek Energy analyst Thad Walker.

"One of the drivers of the demand mix changes is the desire for cleaner energy -- more solar and wind," he said. However, he said by 2020 there should be an uptick in gas-fired generation in California, even as wind and solar generation increases.

Walker called the different forecasts in California and the Southwest "the tale of two markets" with California sporting "a lot of renewable generation while the rest of the Southwest is seeking a bigger gas burn" to replace retiring coal-fired plants.

California had 1,000 MW of solar power a few years ago, and today it has more than 6,000 MW, which Bentek expects to grow to 12,000 MW by 2020. "The gas equivalency of this solar is about a .5 Bcf now,” he said. "Going forward out to 2020, solar is going to represent upwards of 900 MMcf/d."

In the Pacific Northwest a different story is unfolding, with declining hydro and more upcoming coal retirements, Walker noted, leading to an increased gas-fired power burn in that region.

Margolin offered more of a macro view saying it was necessary to view the whole picture even if a company's focus is confined to one or two regions.

"With so much of the gas production migrated out East, and the U.S. pipeline infrastructure maturing and expanding to create more inter-connectivity, you really have to be aware of what is happening in virtually every market across North America even if you're only participating in one subset of that," Margolin said.

In sum, Margolin described a North American market in which production is declining, except for the Northeast and Texas, with increasing demand, and more than adequate storage.

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