Over the past decade, the development of new natural gas – fired generating assets has been similar to an amusement park roller coaster ride — very high peaks and the lowest of lows, with fast and stomach-churning movement between. Expect the ride to continue into the near future.
The power industry is experiencing a growth period for new natural gas – fired generating capacity. Since the bottom fell out of this market in 2005, new construction activity for gas capacity has grown at a pace of 20+% per year, and though we do not expect new construction activity in 2009 to surpass last year’s, the number of projects under development continues to grow. In early summer, projects currently on the books for kick-off by the end of this year could represent a 52% increase in construction kickoffs over last year.
Declining Gas Price Gives Projects a Push
Although the spotlight continues to shine most brightly on renewable energy, natural gas has once again become an attractive fuel choice for new generating assets. For the past few months, natural gas prices have been on a downward trend across the nation. The electric power price for natural gas has declined nearly $3/million Btu since November 2008.
One of the key factors behind lower prices is an overall decrease in demand for the fuel. Total natural gas consumption is projected to decline by 2.3% in 2009, which includes an 8.2% drop among industrial users this year. Lower demand has led to increased reserves in storage, also contributing to lower prices. For the week ending July 10, 2009, reserves were at 2.89 trillion cubic feet, which is 19% above the five-year average of 2.43 trillion cubic feet. Lower demand for natural gas, coupled with increased reserves, creates an environment for price stability, which leads to natural gas becoming an attractive fuel for developers of new generating assets.
There are currently 155 simple-cycle and combined-cycle units, representing more than 20,000 MW of gas-fired capacity, under construction in the U.S. All of these units are part of projects that are scheduled to begin commercial operation between 2009 and 2012. These projects represent almost 17,000 MW of installed capacity from combined-cycle units and over $12 billion in capital investment, while the simple-cycle projects represent total spending of $1.75 billion.
These projects include the 600-MW Bear Garden project in Virginia being built by Dominion Energy, which is scheduled for completion in 2011, and the first 1,100-MW phase of the 3,300-MW West County Energy Center in Florida being built by Florida Power & Light Co., which is scheduled for start-up later this summer.
So far this year, 47 gas-fired units, representing almost 6,000 MW, are under construction. These projects represent a total investment of more than $4 billion. For the balance of the year, there remain 95 units and 9,000 MW that have a construction kickoff date scheduled (Figure 1). Of these, total projects set to supply 1,700 MW are in the advanced development stages, meaning that permits and financing are in place. The remaining projects are still in development and could fall prey to permitting delays or lack of financing.
1. Explosive growth. Active natural gas–fired projects have increased in all regions of the U.S., especially in the Southwest and on the West Coast. Data shown in the graph are based on precommissioned projects in the planning, engineering, or construction stages of development. Source: Industrial Info Resources
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