In 2009, unconventional shale gas emerged as the dominant driver in North American natural gas markets. Rapid increases in shale gas production and shale-driven upward revisions to the U.S....
Gas Market Outlook
Why America’s bridge fuel faces a road block.
However, the most striking change over the past 10 years was the massive build of natural gas-fired power generation capacity.
In recent years, utilities and independent developers have moved away from natural gas in their planning around new power generation capacity, reflecting uncertainties about fuel supply, natural gas prices and price volatility, environmental regulations, and carbon policy. Increased diversity would make sense to most, and there is a mix of new power generation capacity in development including coal, nuclear, hydro, and natural gas.
However, renewable development projects-–particularly wind and solar— have sprouted up rapidly over the past several years and now dominate the power generation development pipeline ( see Figure 6 ). The total amount of new power generation capacity being planned can overstate the potential for new capacity given the delays and cancellations that occur. For example, in 2000-2001, a large amount of the planned natural gas-fired capacity additions were merchant plants, which subsequently were cancelled.
Renewable project development cancellations jumped to approximately 9 GW in 2009 compared to approximately 1 GW in 2008; so clearly not all of the proposed renewable capacity additions will be built. However, Ventyx expects state-level renewable portfolio standards (RPS) to continue to drive development of wind and solar projects. There is potential for a national RPS requirement and support for large-scale electric transmission expansion, which would further support renewable energy development.
The focus on renewable energy strongly affects the fuel choices for other power generation capacity construction. Wind farms typically require other generating units in a transmission area to ramp up or down to accommodate the wind energy output. As a result, as wind generation capacity expands, more ancillary services and more flexible power generation units are required. Some management at utilities in regions where wind resources are very high has commented that they never might construct another baseload power generation plant. Instead, these utilities most likely will install natural gas-fired simple-cycle and combined-cycle units and are investigating bulk power storage such as pumped hydro and compressed air energy storage.
While the growth in renewable energy is likely to support some amount of additional natural gas-fired power generation capacity, it is not likely that natural gas demand from the power sector will increase as a result of expanding renewable energy. Playing a supporting or “firming” role to renewable energy is important to the grid, but natural gas-fired power plant capacity that is largely operating to support regulation up or regulation down requirements and to meet peak loads will not drive increasing natural gas consumption. Rather, RPS requirements will tend to increase the variability in operation of natural gas units and potentially increase the volatility in natural gas prices. This is good news perhaps for traders and natural gas storage developers, but not much help for shale gas producers that are looking for a steady and reliable market for newly drilled wells.
State, regional, and potential federal regulation of greenhouse gas is another matter. State and regional restrictions on carbon emissions and the potential for federal regulation have created a hostile environment for coal power plant