Natural gas is projected to capture the lion’s share of themarket for new generation capacity through 2015 as a result ofheightened competition in the electric industry, according to arecent study by the Energy Information Administration (EIA) titled”Challenges, Risks, and Opportunities for Natural Gas from ElectricPower Industry Restructuring.”

From 1996 to 2015, additions of coal-fired capacity areprojected to range from 20 GW in a low fossil fuel case to 49 GW ina no competition case, whereas additions of natural gas turbine andcombined-cycle capacity range from about 256 GW in the nocompetition case to 324 GW in the high fossil fuel case, accordingto the study.

“Across the cases, competition tends to favor the use of naturalgas over coal for electricity generation because natural gas-firedpower plants are generally projected to be more economical thancoal-fired plants,” the report stated. The study also found thatconsumption levels increase for all fossil fuels and renewablesources, whereas consumption of nuclear power generation declinesas a result of retirements and lack of new construction.

The study also suggests that the restructured electricity marketis not projected to stimulate renewable energy technologies becausethey will remain more costly than fossil fuel alternatives through2015. Renewables will penetrate the electricity markets only ifrequired by federal policies. Furthermore, the study found thatelectricity restructuring is not expected to have a significantimpact on oil production because petroleum-based generation is asmall share of overall electricity generation.

The EIA conducted a quantitative analysis to determine theimpacts that competitive electricity generation markets could haveon fuel supply industries. It found when competition is high,natural gas production is projected to range from 0.8% lower to2.2% higher than in the no competition case in 2005 and from 0.3%to 6% higher in 2015. The projected average natural gas prices atthe 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 casessuggest that restructuring in the electric power industry willstimulate demand for natural gas and that rising demand will leadto higher wellhead prices as the discovery process progresses fromlarger and more profitable fields to smaller, less economicalones.” The projected price increases also reflect more productionfrom higher cost sources, such as conventional and unconventionaloffshore recovery.

Firas Barazi

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