NGI The Weekly Gas Market Report / NGI All News Access

PG&E Generating 'Not As Bullish' on Generation Gas Demand

PG&E Generating 'Not As Bullish' on Generation Gas Demand

A top official with PG&E Generating last week confirmed what some, such as FERC, have suspected already - that the increase in natural gas demand for power generation will not be as great as has been anticipated for the immediate future.

"Nationally, even in light of various forecasts, we're not as convinced that there will be a huge increase in electric generation use for natural gas for the next five or six years. We're not as bullish as some of the pundits are," such as the Energy Information Administration and the Interstate Natural Gas Association of America, said PG&E Generating President and COO Chrisman Iribe at the 11th annual LDC Forum in Chicago, IL, last Tuesday.

"But nevertheless, what we're looking at is something in the neighborhood of 80,000 MWs [of new generation capacity], split roughly 50-50 between baseload and peaking," which would translate into about 3 Tcf of additional annual gas demand, he told gas buyers and pipeline executives at the Forum, sponsored by Interchange Energy Group. That would be about 15 Bcf/d of more gas demand in the middle of the summer when electricity consumption is greatest.

In the New England region (six states except New York), he noted more than 30,000 MWs of new generation capacity has been "proposed or talked about." Of that amount, about 5,000 MWs of new capacity "is in construction, and we don't expect there will be too many more...because the market frankly doesn't need too many more facilities." Still, he said 5,000 MWs will require a "substantial amount of additional gas" - about 750 MMcf/d, which would equate to 250 Bcf per year.

In the Midwest market, "our own estimates show something in the neighborhood of 27,000-30,000 MWs of new capacity" will be built, a "significant chunk" of which will be peaking facilities - meaning they would run only two to three months during the summer. "You're talking about 2.5 Bcf/d [of] increased demand for brand new peaking facilities over the next three to four years," and an equal amount for baseload generation plants, Iribe estimated. The potential hike in gas demand will be sufficient to keep busy "Alliance or whoever [is] your favorite new delivery pipeline" into the Chicago area.

PG&E Generating, a major developer of gas- and coal-fired generation plants, is doing its part, he noted. The company is building "right now" two key gas-fired facilities in New England, plans to start construction "in the next three or four months" on three more plants on the Atlantic Coast and in California, and expects to start work on two other facilities in Michigan and Wisconsin next spring, according to Iribe. "All told, my consumption of natural gas nationwide to make electricity will exceed 1.5 Bcf/d in four years. We're a major user of gas, and anticipate that we're going to be one of your best friends."

He said his company favors gas-fired facilities because of the favorable economics. He estimated it costs PG&E Generating about $500 per kW to build a gas-fired generation plant, compared to more than $1,700 per kW for a coal-fired facility. "That difference in capital --- a huge amount of capital, hundreds of millions of dollars of capital [that] we don't need to expend for a gas-fired facility --- puts a huge premium value on natural gas for us. Gas would have to go up 2 1/2 times at the wellhead to get us to be willing to [build] coal-fired facilities today," Iribe noted.

Still, he said that PG&E Generating was "in no way afraid" of coal-fired facilities. He estimated coal presently accounts for about 60% of his company's fuel consumption, while gas averages about 20-25%. But that mix will change over the next few years, as King Coal plays a lesser role. "I'm not sure there's going to be a huge resurgence of coal, even in existing facilities, as we go through the next decade or so."

To serve generation plants, Iribe said pipelines and LDCs will have to deal with the wide swings in their demand. "We have a facility in New England that we've intended to be baseload that burns approximately 100 [MMcf/d]," he noted, but added there are times, even on peak days, when demand can "run down to as little as 20 MMcf of daily use," and then shoot back up to the 100 MMcf/d level. These "swings within a day [are] something that is very real to us," and developers are hoping that once new generation facilities are completed the gas pipelines and LDCs will come and be able to meet their needs --- it's "sort of like in the [movie], Field of Dreams."

Iribe said generators also depend on and require more frequent price signals, as often as every five minutes. "Someone has said that the electric world is already on the Internet if you think about the real-time information that we have to play with. And the gas industry probably needs to join us," he told gas industry executives.

Iribe said power generators and LDCs currently "are really grappling with [gas] requirements that are fundamentally very complementary." For instance, "I need gas in the summer," which won't interfere with LDCs' traditional peak demand in the winter. "I need gas in the middle of the day. I don't need gas at night. Most of my facilities are dual fuel, [which means] I can give up gas for a short period --- a total of 14 to 20 days --- in the course of a winter season."

He sees natural gas, which traditionally has enjoyed peak demand only in the winter, evolving into a market with two peak periods to meet the needs of power generators. But the summer demand of generators would coincide with the storage injection season to supply LDCs' traditional winter demand, possibly creating a sort of tug-of-war between the two factions. "There may be as much demand, and I guess we saw it this past summer, for natural gas to go into [gas turbines] as there is to put it into storage" during the summer for winter use. "I suspect that there may be a better price for gas converted to electricity than gas stored for wintertime consumption."

Susan Parker

©Copyright 1999 Intelligence Press, Inc. All rights reserved. The preceding news report may not be republished or redistributed in whole or in part without prior written consent of Intelligence Press, Inc.

ISSN © 2577-9877 | ISSN © 1532-1266
Comments powered by Disqus