Power Generators To Stick with Natural Gas

With natural gas price spikes finally seeming to ease after a six-month-long roller coaster ride, U.S. electricity generators have taken the experience as a warning, but vow to stick with natural gas as their go-to plant-firing source.

"Although we are looking at other sources of fuel, all of the generation that we are developing right now is gas-fired," said Charlie Chambers, vice president of business development for Calpine Natural Gas. "At the end of 2005, we just announced that we intend to have 70,000 MW of generation, which would include our current production, plants in construction and the ones that are under development. The significance of it is that it will require Calpine to have fuel in its plants exceeding 9 to 10 Bcf/d. That's over 10% of all U.S.'s deliverability today of natural gas."

Chambers said that while he believes there will be adequate gas supply in the future, Calpine is also looking into alternative fuels such as liquefied natural gas (LNG).

Calpine's portfolio is expected to include 60,000 MW of base load capacity and 10,000 MW of peaking generation, the company said. Calpine has sealed its commitment to gas by placing an order for 183 gas turbines, representing more than 45,000 MW of electricity when operating in a combined-cycle configuration.

Calpine spokeswoman Katherine Potter said that Calpine's natural gas program is in charge of acquiring equity interests in gas reserves to alleviate reliance on outside parties. "What we would like to see is a mix of 25% of Calpine owned and controlled natural gas reserves to help fuel our fleet, and the remainder under a variety of contracts," stated Potter.

Taking into account that natural gas as a clean-burning fuel is still relatively cheaper than its alternatives and gas plants are less expensive to build than alternative fuel plants, natural gas continues to get the nod from power producers nationwide.

"Natural gas is a major part of our generation portfolio," said Jaimie Stephenson, spokeswoman for Mirant Corp. "Although we do have other plants that are oil-fired and coal-fired to balance the portfolio, we mostly use natural gas because it is the cleanest, most efficient fuel." Stephenson said that even though the market has been pretty volatile, it has not wavered the company's stance on gas. "As far as prices are concerned, our marketers are constantly in a position in the market so that we can get the best prices," Stephenson said.

Mirant, formerly known as Southern Energy, owns more than 17,900 MW of electric generating capacity around the world, including about 12,500 MW in the United States, with another 7,000 MW under advanced development. Mirant is 80% owned by Southern.

Cinergy Corp. also said it plans to stick with natural gas, regardless of the current volatility. We look at natural gas as a very good peaking fuel," said Steve Brash, spokesman for Cinergy. Brash said the company was currently developing numerous projects and even reworking some of its old coal-fired plants to run on natural gas.

Cinergy is studying alternative fuels as well, he added, but natural gas is currently the company's primary fuel source. Cinergy's energy merchant segment owns or operates nearly 21,000 MW of electric and combined heat plant generation that is either operational or under development domestically and internationally.

Reliant Energy also said that all of its current projects would be natural gas-fired. Richard Wheatley, a spokesman for Reliant, said that his company was not concerned by the market's recent volatility. "At some point it's (gas prices) going to have to fall back," said Wheatley. "They are going to have to correct themselves concerning price levels, but we are still planning all the new plants as gas-fired. There are too many benefits with natural gas in terms of where you site them and operate them, versus another fuel like coal."

Reliant has nearly 27,000 MW of power generation in operation in the U.S. and Western Europe and has announced acquisitions and development projects that will add nearly 4,000 MW.

The question becomes, is there enough gas? Arlington, VA-based Energy and Environmental Analysis, Inc (EEA) in its February Monthly Gas Update said that production levels are on the rise, with large increases in drill rigs in the ground over 1999. "With continued increase in productive capacity, gas prices could decline substantially and re-couple with residual oil prices by early summer," said Kevin Petak, director of Energy Modeling and Forecasting for EEA (see NGI, Feb. 12).

Alex Steis

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