Natural gas demand for U.S. electrical power generation will remain fairly flat at about 3 tcf/year for several years, then grow substantially by 2010.
So predicts a report Energy International Inc., Bellevue, Wash., prepared for the American Gas Association.
Michael Baly, AGA president, said power industry restructuring is unlikely to reduce residential, commercial, and industrial gas markets in the short term.
"This is because of the renewed strength of gas in those markets, the large existing investment in natural gas equipment and appliances, and the limits on potential electricity price decreases imposed by transition costs," he said.
The Federal Energy Regulatory Commission has launched regulatory changes that should shift the power industry to an open access system, much like it has the interstate gas pipeline industry.
Changing interface
Energy International"s study said, "The historical interface between the gas and electric industries will undoubtedly be remodeled.
"Currently, natural gas is a major fuel for power generation. Its expanded use in turbines and boilers offers the gas industry one of its largest single opportunities for volume growth. Opportunities for gas company investment in power generation will expand as a result of deregulation."
Natural gas is likely to be used widely in independent power generation and will increasingly be used to reduce emissions levels at coal burning power plants through cofiring or reburning methods.
The study said recent, substantial growth in the use of gas for power generation will level off in the near term.
"Longer term, beyond 1998-2000, there is general agreement that gas use will continue to climb in step with growing power needs and retirement of coal and nuclear plants.
"The only question is how rapidly gas utilization will grow. Estimates have ranged widely, from 6% to 45%, in the first decade of the new century. It is interesting that the low forecast is from the gas industry (Gas Research Institute) while the highest forecast is from the electric industry (Edison Electric Institute)."
Caveats
The study cited two caveats in the outlook for natural gas in power generation.
It said after deregulation, utilities may find that the lowest cost generation is obtained by simply reducing reserve margins, operating current facilities at a higher rate. With the growth of wholesale wheeling, the need to maintain higher reserves decreases.
Also, with increasing electrical power price competition, the cost of fuel will come under pressure. That could reduce revenues for gas producers.
"Eventually," the study said, "if wellhead prices are unattractive, some producers may elect to provide a higher value added productelectricityeither near gas fields, near the market, or somewhere in between, with the economics of pipeline vs. wire transportation determining location."
Commodities marketing
Baly said, "One result of electricity industry restructuring may be that some companies become interested in marketing electricity and gas as commodities.
"This could potentially be beneficial to electric and gas companies because they could improve end use targeting, improve load management, and create opportunities to provide value added services such as investment capital, equipment maintenance, metering, and billing and energy management.
"Partnerships and strategic alliances between energy companies of all types provide natural gas utilities with another avenue to satisfy customer needs. There have always been a significant number of combination utilities providing retail service to customers, and it is certain there will continue to be companies whose sole business is production, transmission, and/or distribution of gas, as there will be companies that are involved only in distribution of electricity.
"However, there is no question that companies that market both natural gas and electricity as commodities to energy customers nationwide could play an important role in a new era of energy buying and selling."
