With oil prices hovering around $100/bbl and natural gas trading below $8/Mcf, gas deliveries to dual-fired power plants jumped last year and likely will continue, Bentek Energy LLC reported.
Fuel switching increased by an average of 31% per day in 2007 over 2006, which "equates to an additional 0.5 Bcf/d of gas consumption by these switchable power plants," the Golden, CO-based energy consultant stated Wednesday. Between 2005 and 2007, gas use at the surveyed plants rose by an average of 52% per day.
Managing Director Rusty Braziel said Bentek reviewed gas scheduled to be delivered daily into 460 gas-fired power generation plants.
"Recently we carved out just the 112 of this group that have fuel switching capabilities to see the level of switching going on over the past year," Braziel said. "It was a big number...Of course, this is no big surprise when oil is near $100 and gas is below $8. But it is a big shift, and probably a harbinger of things to come as the market continues to adjust to a high crude/gas ratio."
The BTU parity between crude and natural gas prices is significant. For instance, February crude oil settled last Tuesday at $96.33/bbl, equating roughly to $16.055/MMBtu, which was more than double the February natural gas closing price of $7.967/MMBtu.
The dual-fired facilities reviewed in Bentek's study generate an estimated 94 GW of baseload capacity, which represents about 8% of total power production in the United States. The total natural gas burn at U.S. power plants was up 2.1 Bcf/d in 2007, an increase of 13% over 2006, Bentek reported.
Gas prices were at a discount to fuel oil for most of 2007, noted Bentek senior analyst Jack Weixel. "This leaves natural gas as the low-cost fuel alternative when compared to increasing petroleum prices."
Last week the U.S. Energy Information Administration (EIA) reported that 2007 spot gas prices stayed above the $7 mark due in part to the supply and demand imbalance (see related story). The EIA estimated that the spot price averaged $7.17/Mcf in 2007 and is expected to average $7.78/Mcf in 2008 and $7.92/Mcf in 2009. Henry Hub spot prices, said EIA, averaged $7.32/Mcf in December and are projected to climb to slightly more than $8/Mcf into February.
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