A top official with PG&E Generating this week confirmed whatsome, such as FERC, have suspected already-that the increase innatural gas demand for power generation will not be as great as hasbeen anticipated for the immediate future.

“Nationally, even in light of various forecasts, we’re not asconvinced that there will be a huge increase in electric generationuse for natural gas for the next five or six years. We’re not asbullish as some of the pundits are,” such as the Energy InformationAdministration and the Interstate Natural Gas Association, saidPG&E Generating President and COO Chrisman Iribe at the 11thannual LDC Forum in Chicago, IL, Tuesday.

“But nevertheless what we’re looking at is something in theneighborhood of 80,000 MWs [of new generation capacity], splitroughly 50-50 between baseload and peaking,” which would translateinto about 3 Tcf of additional annual gas demand, he told gasbuyers and pipeline executives at the Forum, sponsored byInterchange Energy Group. That would be about 15 Bcf/d of more gasdemand in the middle of the summer when electricity consumption isgreatest.

In the New England region (six states except New York), he notedthat more than 30,000 MWs of new generation capacity has been”proposed or talked about.” Of that amount, about 5,000 MWs of newcapacity “is in construction, and we don’t expect there will be toomany more…..because the market frankly doesn’t need too many morefacilities.” Still, he said 5,000 MWs will require a “substantialamount of additional gas”-about 750 MMcf/d or 250 Bcf per year.

In the Midwest market, “our own estimates show something in theneighborhood of 27,000-30,000 MWs of new capacity” will be built, a”significant chunk” of which will be peaking facilities-meaningthey would run only two to three months during the summer. “You’retalking about 2.5 Bcf/d [of] increased demand for brand new peakingfacilities over the next three to four years,” and an equal amountfor baseload generation plants, Iribe estimated. The potential hikein 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-firedgeneration plants, is doing its part, he noted. The company isbuilding “right now” two key gas-fired facilities in New England,plans to start construction “in the next three or four months” onthree more plants on the Atlantic Coast and in California, andexpects to start work on two other facilities in Michigan andWisconsin next spring, according to Iribe. “All told, myconsumption of natural gas nationwide to make electricity willexceed 1.5 Bcf/d in four years. We’re a major user of gas, andanticipate that we’re going to be one of your best friends.”

He said his company favors gas-fired facilities because of thefavorable economics. He estimated it costs PG&E Generatingabout $500 per kW to build a gas-fired generation plant, comparedto more than $1,700 per kW for a coal-fired facility. “Thatdifference in capital—a huge amount of capital, hundreds ofmillions of dollars of capital [that] we don’t need to expend for agas-fired facility—puts a huge premium value on natural gas forus. Gas [prices] would have to go up 2 « times at the wellhead toget us to be willing to [build] coal-fired facilities today,” Iribenoted.

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

Iribe said generators require more frequent price signals, asoften as every five minutes. “Someone has said that the electricworld is already on the Internet if you think about the real-timeinformation that we have to play with. And the gas industryprobably needs to join us,” he told gas industry executives.

He sees natural gas, which traditionally has enjoyed peak demandonly in the winter, evolving into a market with two peak periods tomeet the needs of power generators. But the summer demand ofgenerators would coincide with the storage injection season for gasto supply LDCs’ traditional customers, creating a sort oftug-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 thesummer for winter use. “I suspect that there may be a better pricefor gas converted to electricity than gas stored for wintertimeconsumption.”

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