generation

It used to be the case that if natural gas even came up in power-industry discussions of generation, it  happened at the end of a meeting—“Well, we’re done with our nuclear and coal plans, anyone have anything else to discuss before we go to dinner?  Oh, that’s right—anything happening with gas?”  Now it’s the other way around.  It seems like every discussion starts with gas, whether it’s about the plants being low-cost and easy to site, about concerns around reliability and price volatility, or around the impact of the gas market on coal investments.  And power is clearly the fastest growing segment of the U.S. natural gas market.  But does all this attention from the power market mean that the natural gas industry really understands the power side?  Perhaps not.  In fact, we’ve found that frequently, as soon as we get beyond the marketers and analysts who deal specifically with supplying gas-fired power generation, there’s a lot the natural gas industry (and the energy markets in general) can learn about power plants, electricity markets, and how natural gas fits in.  So for that reason, we’ve concluded that now is a good time for a primer on how gas-fired generation works, how it fits together with energy markets and how it might be affected by national policy changes.   Today we take on this challenge with the first installment of a three-part series.

There is still a lot of summer left in Texas. Some say summer in the Lone Star state runs from Cinco de Mayo through the middle of the high school football season, which sounds about right. But so far at least, a combination of moderate electricity demand and relatively high natural gas prices has resulted in a decidedly non-stellar gas power burn. That is good news for those eager to see the state’s—and the nation’s—gas storage levels rebound from unusually low levels after the hard, cold winter of 2013-14. In this episode of our region-by-region series on gas power burn vs. gas storage rebuilding, we look at the Electric Reliability Council of Texas region, where gas-fired generation is king.

The golden years of natural gas abundance in which we find ourselves are sparking tremendous enthusiasm among potential users of the fuel, from power generators to major industrial companies, to exporters both current and potential.  After all, a trifecta of cheap, abundant, and clean is hard to resist.  But the big question is  how supply and demand really shake out after everyone’s enthusiasm results in new and growing use of the resource.  Is the natural gas industry going to be able to supply all the new demand without prices going up the way they have in the past, most recently hitting double-digits at Henry Hub just five years ago?  The first step in order to weigh supply against demand is to have a plausible scenario of what that demand might be. What does it all add up to?  So in today’s blog we will see how much demand we should be trying to meet, to be followed later by a next installment to see how producers might meet it.

During 2012 the FERC jumped into the ring to involve itself in the long running debate to improve coordination between the gas and electric power industries. The FERC is motivated by concerns about reliability and the trend to increase power generation from natural gas at the expense of coal and oil. The commission held 5 regional conferences to identify the industry’s concerns and the role of regulation in any solutions. Today we examine progress on this important initiative.