EIA: Gas to Capture Market For New Generation Capacity
Natural gas is projected to capture the lion's share of the market for new generation capacity through 2015 as a result of heightened competition in the electric industry, according to a recent study by the Energy Information Administration (EIA) titled "Challenges, Risks, and Opportunities for Natural Gas from Electric Power Industry Restructuring."
From 1996 to 2015, additions of coal-fired capacity are projected to range from 20 GW in a low fossil fuel case to 49 GW in a no competition case, whereas additions of natural gas turbine and combined-cycle capacity range from about 256 GW in the no competition case to 324 GW in the high fossil fuel case, according to the study.
"Across the cases, competition tends to favor the use of natural gas over coal for electricity generation because natural gas-fired power plants are generally projected to be more economical than coal-fired plants," the report stated. The study also found that consumption levels increase for all fossil fuels and renewable sources, whereas consumption of nuclear power generation declines as a result of retirements and lack of new construction.
The study also suggests that the restructured electricity market is not projected to stimulate renewable energy technologies because they will remain more costly than fossil fuel alternatives through 2015. Renewables will penetrate the electricity markets only if required by federal policies. Furthermore, the study found that electricity restructuring is not expected to have a significant impact on oil production because petroleum-based generation is a small share of overall electricity generation.
The EIA conducted a quantitative analysis to determine the impacts that competitive electricity generation markets could have on fuel supply industries. It found when competition is high, natural gas production is projected to range from 0.8% lower to 2.2% higher than in the no competition case in 2005 and from 0.3% to 6% higher in 2015. The projected average natural gas prices at the wellhead range from the a low of $2.05/Mcf in 2005 to a high of $2.61/Mcf in 2015. The report said "the results from all cases suggest that restructuring in the electric power industry will stimulate demand for natural gas and that rising demand will lead to higher wellhead prices as the discovery process progresses from larger and more profitable fields to smaller, less economical ones." The projected price increases also reflect more production from higher cost sources, such as conventional and unconventional offshore recovery.
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