With intentions of cutting power plant emissions, last month the Environmental Protection Agency (EPA) released its Cross-State Air Pollution Rule (CSAPR). However, an analysis by Bentek Energy LLC says the rule, an addendum to the Clean Air Act, would wreak havoc on on power and natural gas transmission grids if implemented as planned.

“The magnitude of this rule has the potential to be quite significant and would create a number of consequences across energy markets,” said Bentek Vice President Rusty Braziel. “The dramatic ramp-up in gas [power] plant utilization due to the EPA’s ruling would lead to substantial gas demand increases and could exacerbate long-standing gas pipeline capacity constraints. Ultimately, this ruling could lead to much higher natural gas prices in a number of regional markets, assuming the rule stands in its current form.”

CSAPR (see NGI, July 11) would cut power plant sulfur dioxide (SO2) and nitrogen oxide (NOx) emissions beginning in 2012 and impact power plants in 27 states in the eastern half of the country. However, Bentek said it expects the rule’s implementation to be delayed.

Bentek said emissions from power plants in affected states would need to be “substantially reduced” to comply with the CSAPR. By 2014, SO2 and NOx emissions would have to drop 55% and 31%, respectively, when compared to 2010 levels. In order to comply with the CSAPR, the EPA is suggesting that power plant operators either switch to lower-emission fuel sources or install state-of-the-art emissions reduction equipment. Overall, new emissions equipment costs could exceed $20 billion.

The firm’s market alert “EPA Rule Would Stress Power, Gas Grids” says the ruling could lead to a 35% increase (7 Bcf/d) in gas demand from power by 2014 and would force 50 GW of coal-fired power units to either be retired or converted to burn natural gas, resulting in a 15% drop in coal demand during the same period.

For natural gas pipelines, the greatest impact would be in the Northeast where Columbia Gas, Texas Eastern Transmission and Dominion would feel the greatest pressure. Impacts in other regions would be comparatively muted, but in the Midwest Northern Natural Gas would see capacity demand climb significantly, and in Texas Gulf South Pipeline would experience the biggest demand increase.

“Because many power plants nominate gas on an interruptible basis, power price spikes and power shortages could become prevalent during periods of pipeline capacity constraints,” Bentek said.

“As gas flows approach capacity, prices and basis (locational prices compared to prices at the Henry Hub) increase downstream of the constraint. The Northeast, with its large metropolitan gas demand centers, significant winter heating load and abundance of gas storage capacity, is prone to seasonal pipeline constraints and price blowouts.”

If the rule is implemented as planned, Bentek said “billions” would need to be spent on power and natural gas infrastructure in a very short time frame. “In fact, the time frame is so short that it could be impossible to achieve,” Bentek said.

Forward commodities markets are suggesting skepticism about the current implementation plan, Bentek noted, as gas futures prices and forward basis for 2012 and 2014 have yet to respond to the potential incremental demand increase.

Last week the Railroad Commission of Texas (RRC) asked the state’s attorney general to challenge CSAPR. “This rule leaves many coal-fired power plants with no other alternative than to greatly reduce output or shut down completely, killing jobs and increasing the probability of rolling blackouts during peak demand,” said Commissioner David Porter. “We have experienced record heat this summer, and if you think it’s hot this summer, wait until next summer when we don’t have these electric plants online.”

RRC commissioners said they believe the rule is “legally flawed” and is not supported by “credible and accurate technical data.”

©Copyright 2011Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.