The next several years will bring strong support for natural gasprices from gas-fired power generation as the energy industrystrives to catch up with electricity demand, according to DynegyCEO Chuck Watson. “I believe very firmly that over the next 10years we’re going to be in the $2 to $3 [per Mcf] price range. Andif that in fact is where this price in gas is going to vacillate,then I believe that will also speak volumes for the producercommunity to be able to find natural gas to meet growing demand.”

Watson, who spoke at the 19th annual Cambridge Energy ResearchAssociates Executive Conference in Houston last week, said thepower generation industry, particularly gas-fired peaking plants,will be the catalyst for continued gas demand growth. He predictedpower generation will account for more than 75% of the increase ingas demand over the next 10 years.

“.[P]articularly regionally we are short peaking capacity in theU.S. Not only are we short currently, but we’re actually losingground because current demand is outstripping the available supplyof new generation facilities coming on stream. [T]his increase indemand growth, you’re not going to see this gradually over the next10 or 15 years. This is a phenomenon that we are short and gettingshorter in the electricity demand area, and it can only be met bygas-fired peak facilities, and that’s virtually all that’s gettingbuilt.”

Strong price support from power generation will be a boon to gasproducers, but too much of a good thing is just that. “I don’tbelieve producers are going to want more than $3 [gas prices]because then you’re going to have LNG competing pretty nicely inthe U.S. At the $2 and $3 level, we will be able to meet a 30 Tcfdemand.”

Growing demand will value pipeline and storage capacity at apremium over the next five to 10 years, Watson said. “And it’s themarket [area] storage particularly that’s going to be valuable tomeet that demand.”

Focusing on the eastern United States, generally everythingexcept the Northeast Power Coordinating Council region, Watson saidthe country is about 32,000 MW short of peak capacity in theregion. “And this assumes that everything that’s been announced inthe U.S. is actually built.

“We believe we’re going to be considerably short in the 2003period in a very important growth area of the United States. So,once again, I’m absolutely convinced gas has a tremendous future inthe U.S., and it’s going to be largely because of the electricitybusiness in the U.S. where we’ve got a situation where peakcapacity is clearly being required and we’re not really catchingup, and I don’t even see us reaching equilibrium for five years.”

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