Favorite Fuel Returns
For 2010, gas sees its prospects gaining in the power market, bolstered by new technology and large new supplies. The leader of the generating pack in the 1980s and early 1990s, gas went into a deep decline on high prices and diminishing reserves in the first part of the 21st century. Many analysts said the days of gas as a major generating fuel were over.
No more. Given that gas is less polluting than coal (by any measure), produces half as much carbon dioxide (CO2) per unit of energy output, and requires plants that are quick to build and not capital-intensive, new gas reserves appear to position the fuel as a winner in generating markets. The U.S., once seen as a declining gas producer, may be a world leader in gas.
In November, The Energy Daily (a sister publication of POWER) reported that the North American Electric Reliability Corp. (NERC) has found that "Electric utilities are increasingly showing an ‘overwhelming’ preference for building natural gas – fueled plants, a trend that is expected to drive gas past coal as the dominant North American fuel for on-peak power production by 2011." According to the newsletter, "NERC said both regulated utilities and merchant generators are increasingly favoring gas plants because the fuel has been discovered in more abundance and is cheaper than in the past. In addition, gas plants are easy to site, can be built quickly and produce less carbon emissions than other types of traditional generation."
This overabundance of natural gas reserves may also have a downside, according to a report released by NERC on October 29. NERC’s "2009 Long-Term Reliability Assessment 2009 – 2018" notes that natural gas – fired on-peak power production may push past coal-fired generation by 2011, portending system reliability problems. NERC also cited cyber-security concerns, the integration of fast-growing renewable resources into the grid, and uncertainties created by the economic slowdown as emerging reliability worries that it faces (Figure 2).
2. Demand for electricity will rise in 2010. The top pie charts describe the expected growth of capacity that will be available during peak hours. The bottom pair describe the expected growth of installed capacity. Coal and gas will continue to be the fuels of choice during peak generating hours. Wind generation will continue to grow faster than any other type but will contribute little to peak supplies. Source: NERC
NERC recognized that existing reserve margins are adequate across the U.S. for the next few years, but the first priority must be to expand the grid and increase the capacity of existing transmission and distribution systems to handle the expected growth of renewable generation. The report concluded, "More than 11,000 miles (or 35%) of transmission (200 kV and above) proposed and projected in this report must be developed on time to ensure reliability over the next 5 years. 32,000 miles of transmission (200 kV and above) are projected for construction from 2009 to 2013 overall." NERC strongly believes that transmission siting and construction is the most urgent issue for the power generation industry, now and well into the future.
Electricity growth has stalled over the past two years, given the chaos in the global economy. However, NERC projects that demand will increase 15% between 2009 and 2018, compared to its 17% forecast in last year’s report. The projected demand increase has steadily decreased over the past several years. Once again, NERC underlined the need for grid expansion and new transmission capacity to handle renewables and ensure reliability, with particular urgency seen in areas of the Southwest.
"These competitive advantages have resulted in an overwhelming preference for [gas] over the ten-year period, as installed natural gas capacity is projected to increase 38 percent over the ten-year period, while coal is projected to increase by only 6 percent," NERC’s assessment said. Its predictions of demand for new generation have been overly generous in the past but now appear to be more realistic (see table). The EIA predictions of electricity demand growth do not include peak demand growth as a separate category, but rather predict energy consumption will grow 8.2% through 2018. Together, the NERC and EIA data clearly show that the need for additional, dispatchable load during on-peak hours will be a primary focus for electricity system planners. Expect more gas-fired reciprocating engine and combined-cycle plants designed for intermediate peaking service to be announced in the coming year.
Electricity use increases, slowly. The North American Electric Reliability Corp. (NERC) expects the rate of peak demand and energy consumption growth to slow in coming years. Source: NERC
Further, NERC said that "on-peak natural gas capacity is projected to grow by more than double the amount of any other resource, and by more than five times any other resource when dual fuel resources (primarily fired by natural gas and another, alternate fuel) are excluded." NERC said a "plausible" future scenario involves flat or negative power demand growth for the next seven or eight years, followed by an "abrupt change to normal or high demand growth."
From NERC’s perspective, however, that trend is not all good. NERC said the growing reliance on gas could create grid problems if gas usage strains the infrastructure that delivers gas to power plants. "The projected growing reliance on natural gas increases the potential for adverse reliability impacts due to fuel supply and storage and delivery infrastructure adequacy issues," NERC said.
Increased gas demand this past summer already put a strain on existing gas transmission infrastructure. Chesapeake Energy Corp. admitted that it briefly slowed production because natural gas pipelines and gathering systems were already operating at maximum capacity (Figure 3).
3. Gas storage and pipelines full in 2010. An excess of natural gas is packing gas lines and storage facilities. Shown is the predicted rate of natural gas storage for 2010 compared to historic amounts. Source: EIA November 2009 Short-Term Energy Outlook
I Told You So
"I used to say we were awash in gas," crows Oklahoma petroleum geologist and gas guru Bob Hefner. "Now I say we are drowning in it." The ebullient Hefner, 74, with a long tradition of gambling big on gas, is now a bastion of the eastern energy establishment. He is associated with the Belfer Center for Science and International Affairs at Harvard’s Kennedy School of Government. He wears bow ties and tuxedo jackets with his Levis and cowboy boots, and underwrites Asian cultural projects with his Singaporean wife, Meili.
In the 1960s, Hefner, a technological optimist of the first degree, proposed deep drilling for natural gas, arguing that the gas resources in the U.S. had barely been touched. In 1969, according to Oklahoma State University, Hefner’s "Number One Green well, drilled to a depth of 24,454 feet in Beckham County, blew in at the highest pressure ever recorded."
Since then, oil and gas exploration and drilling technology have evolved so that seismic analysis can provide a clearer view of the subterranean landscape. Directional drilling technology and hydro fracturing can reach and exploit the most promising strata. There’s a stunning amount of gas down there, say the experts, and it’s getting easier to develop.
Gas-rich shale deposits are not confined to North America. A recent New York Times article noted that petroleum engineers from around the world have come to the U.S. to learn about exploiting natural gas from shale. Amy Myers Jaffe, an energy expert at Rice University in Texas, told the newspaper, "It’s a breakout play that is going to identify gigantic resources around the world. That will change the geopolitics of natural gas."
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