Short Gas Supply Could Hinder Power Plant Construction

With the tight gas supply and demand situation today, some power plants may find themselves stranded unless they've already locked up gas supplies --- and some of the projected gas-fired generation projects could be delayed, Offshore Technology Conference attendees heard last week. Gas inventories and demand will be tight for two or three years, putting more pressure on the infrastructure to expand.

"We will see the infrastructure taxed in ways we never imagined," said Tammy Norman, Dynegy Inc. vice president of energy marketing and origination. The movement in gas prices was "near vertical" last winter, she said, and everyone was slow to respond to the changes. However, in the future, users will be quicker to respond to price changes.

The big problems will be in the delivery system infrastructure, which she said would extend to exploration and production units, which also will max out because producers will be spending more but still may not be able to raise their production yields, Norman said.

The first year of production's average decline rate has risen to 43% from 25% since 1990, she noted. Meanwhile, the U.S. is forecasting a 3% growth in power demand, with gas to fuel power plants reaching 6.8 Tcf by 2010.

With everything being taxed, the near-term alternative for the U.S. marketplace may be liquefied natural gas, said Mark Croke, managing director of Latin America for El Paso Corp. If that happens, El Paso plans to be ready. It announced earlier this year plans to build up to six North American LNG facilities (see NGI, Feb. 12).

The plants announced by El Paso and others could not come too soon, he noted, because already, existing U.S. LNG facilities have reached near capacity.

"Ultimately, LNG will look to the U.S. as the market of last resort," said Croke, who added that El Paso is confident it can deliver LNG to Henry Hub at competitive prices. Croke predicted that a global LNG spot market will develop, but said that most of the prices will be linked to Henry Hub prices.

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