Anyone counting on stricter air emissions rules to drive a gas-fired power generation buildout and put a higher floor under natural gas prices is going to be disappointed -- or at least is going to have to wait a while, according to Bentek Energy LLC.
In its latest Market Alert, Bentek continues to beat the drum for relatively low gas prices on the strength of growing supply from gas shale plays and an expectation that gas-fired generators are not waiting in the wings to save the day for the bullish case on gas prices. Bentek said all the coal-to-gas switching among power generators in 2009 was not a harbinger but a "head fake," and it won't be coming back.
"The higher gas burn in 2009 was interpreted by some as evidence of a possible ongoing upswing in the demand curve to help offset the growth in shale gas production," said Rusty Braziel, Bentek Energy managing director. "But the dynamics of coal-to-gas switching in 2010 have turned out much different. And when we look forward to the 2011-2015 timeframe, the most likely scenario is for moderate levels of coal-to-gas switching and increases in gas-fired power generation demand."
Fuel-switching to gas last year among power generators, according to Bentek, was due to:
"This year gas prices have been higher, hot weather has led to higher demand from power generation -- limiting capacity available for switching -- and high coal stockpiles have forced utilities to burn more coal," Bentek said in its alert.
"Coal-to-gas switching will be an important factor in several regional markets, particularly in shoulder periods. But total power burn demand is expected to increase only 13% (2.5 Bcf/d) to 21.4 Bcf/d in 2015 from an average of 18.9 Bcf/d in 2009. This is 0.7 Bcf/d below the 3.2 Bcf/d growth from the power sector during the previous five-year period (2005-2009)."
The Bentek view stands in contrast to recent thinking from Credit Suisse Commodity Research Director Teri Viswanath, who has maintained that emissions regulations-driven retirement of coal-fired generation will be robust in the years ahead, placing greater demand on existing and yet-to-be built gas-fired units.
"We're seeing that retirements are occurring at a faster clip, so really the upward band on [coal-fired power plant] retirements could be 40 GW of retirements. We see gas taking the lion's share of that," Viswanath said recently (see NGI, Aug. 2).
However, Bentek projects that demand from the power sector will grow only 13% over the next five years. On the supply side, U.S. gas production is projected to remain on its current growth trajectory due to efficiency gains from technology improvements associated with unlocking unconventional resources. Gas storage levels are expected to be near or surpass the high levels established in 2009, the firm said. As a result, Bentek forecasts that gas prices will remain relatively weak compared to historic averages and the New York Mercantile Exchange forward curve.
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