September 1, 2009

New Natural Gas–Fired Projects on an Upswing

Britt Burt, Industrial Info Resources

Number of Gas Projects Accelerates

Overall, the outlook for development of new gas-fired generating assets appears to be promising. For the near term we are seeing a downturn in electricity demand, as retail sales of electricity in the industrial sector fell 12% during the first quarter of 2009 compared to 2008. Total consumption of electricity is expected to fall 2% for the entire year of 2009 and then increase almost 1% during 2010. However, there is anticipation in the industry that beyond 2010 the U.S. will be in a position in which an additional 15,000 MW or more will need to start commercial operation each year in order to meet increased demand for power. This new capacity will be needed not only to meet future demand but also to replace capacity lost from older units scheduled for retirement.

Another key issue driving the necessity for new gas-fired generating capacity is the fact that development of new coal-fired assets is in limbo. Though it is true that a significant amount of new coal-fired capacity is under construction, the future of this sector of the power industry is uncertain. During the past two to three years, there have been multiple cancellations and delays for new coal-fired power projects. They have been caused in large part by the increased capital costs of building new units as well as uncertainty over environmental mandates regarding carbon dioxide emissions. This uncertainty, coupled with the idea that any new capacity from new nuclear plants is five to seven years away, opens the door for gas-fired generation to bridge a major gap.

Although the volume on new gas-fired units has not reached the crescendo of the early 2000s, we are entering another period of growth for this sector of the industry. Could it spell déjà vu all over again?

—Britt Burt (bburt@industrialinfo.com) is vice president, power industry for Industrial Info Resources. IIR (www .industrialinfo.com) is a leading provider of global market intelligence specializing in the industrial process, heavy manufacturing, and energy-related markets.