Recent years have seen fundamental changes in the supply and competitive landscape of the North American natural gas market. In response to high natural gas prices that prevailed during most of...
Betting on Shale
Will unconventional gas assure plentiful supplies?
continuous reinvestment and operations. This vulnerability is apparent in the current environment, which has seen a massive cut in rig activity in response to the collapse in natural gas prices. In addition, it could be an issue in future years when the next phase of LNG liquefaction capacity buildup begins.
A final point is that despite the optimism around shale gas production, some other unconventional resources like tight gas and coal bed methane don’t appear to be expanding, and the conventional components of the U.S. gas resource base are in decline. For example, natural gas production from offshore areas in the Gulf of Mexico has suffered in recent years, and no improvement is expected (see Figure 4).
When the Navigant study on shale gas was released, analysts focused a great deal of attention on the potential for use of natural gas in the transportation sector as a way to reduce greenhouse-gas (GHG) emissions and also reduce U.S. dependence on foreign oil. Somewhat overlooked in the discussion was the tremendous expansion of natural gas-fired power generation capacity and use of natural gas by the power sector over the past decade (see Figure 5).
Data from Ventyx’s Velocity Suite and analysis solution show the rapid expansion of natural gas power plant development during the merchant power boom over 2000-2001. Despite the merchant bust that followed, approximately 200 GW of natural gas-fired capacity was added by the end of 2003.
It’s notable that since 2004, natural gas power plants have continued to be proposed, permitted, and constructed at a fairly constant basis. As a result, in total the U.S. market now includes nearly 300 GW of new natural gas capacity. About 60 percent (163 GW) has been combined-cycle capacity, which represents more than 10 Bcf per day of gas demand during peak load months.
Going forward, as the electric industry increases its focus on lowering carbon emissions, the role of natural gas-fired power generation might shift to firming variable renewable power resources and providing peaking power or standby generation to ensure reliability. However, tremendous uncertainty surrounds the mid-term and long-term outlook for natural gas consumption from the U.S. power sector.
Natural gas power generation potentially might increase dramatically as older coal units are retired under GHG regulation. Even under a scenario where carbon capture and sequestration technology becomes widely available and economic, natural gas consumption for power generation could increase.
Ventyx estimates several potential outcomes for natural gas and coal consumption—based on taking the projections from EIA in its 2009 Annual Energy Outlook and modifying the power plant capacity mix over time so that, under a retirement scenario and a retrofit scenario, a set of CO 2 caps that are similar to the structure envisioned by the Waxman-Markey legislation are achieved through 2030.
In the retirement scenario, coal consumption by the power-generation sector begins declining rapidly while the attendant increase in natural gas consumption is relatively gradual; by 2030, however, natural gas consumption for power generation is projected to almost double from current levels.
In the retrofit scenario, coal consumption falls initially but