Caol Ore

Gas dependence imperils electric reliability

Feb 14, 2013

"Gordon van Welie, CEO of ISO-New England, has called reliance on gas their single most important strategic risk. Concerns abound about the ability of the New England grid to withstand a significant cold snap"
Scott Madden Energy Consulting, 2013

Over the past 15 years natural gas accounted for more than 80% of new electric generation capacity, adding a dangerous dynamic to U.S. gas markets. Specifically, gas power plants have entered into competition with other consumers for fuel, thereby not only increasing the price of gas but also the cost of electricity. Families and manufacturing firms faced this reality in 2008 when the price of gas to heat homes increased 44 % in just five years and the cost of gas to industry increased 64%. Energy welfare agencies such as LIHEAP were overwhelmed and a variety of industrial businesses reduced operations, closed or left the country.

Unfortunately, this dash to gas for power generation is continuing and over the next three years gas will comprise at least 32 gigawatts of net new capacity compared to a marked decline for coal, only 2 from nuclear uprates and none for hydro. Yet, even this large addition of planned gas plants pales when compared to the looming effect of EPA's new punitive regulations on coal power plants. Estimates are that EPA regulations not only will dramatically raise electric rates and cost millions of jobs but will also force the closure of up to 100 gigawatts of coal plants-- essentially one third of the fleet that comprises 42% of our electricity. The adverse impact of these new EPA regulations on an electric power system that has brought us reliable and affordable electricity for decades will be profound.

Skewed Capacity: Demand from Gas Power Plants Could be Overwhelming

Probable U.S. Generation Capasity by 2020

What 500 GW means

  • By 2020, gas generating capacity will exceed that of coal, nuclear, and hydro combined.
  • NERC has warned that increased gas dependence is a risk to electric reliability especially in especially in the Northeast, Florida, Texas and Southern California
  • Demand from the gas fleet could approach 35 Bcf/day compared to 21 Bcf/day in 2011.
  • This would require an additional 4.5 Tcf – twice the production of the Gulf of Mexico.
" increased dependence on natural gas for generating capacity can amplify the bulk power system’s exposure to interruptions in natural gas fuel supply and delivery"
National Electric Reliability Corporation (NERC)

Coal Generation Closure Estimates Versus EPA Estimate

Caol Generation Closure Estimates Versus EPA Estimate
Coal Plants:

  • Ratepayer purchased existing assets
  • Affordable, stable prices
  • Reliable electricity
  • Have kept rates competitive at international level
  • Major source of CO2 for EOR

New Gas Needed to Replace 75 GW of Coal Plant Closures by 2020

New Gass Needed to Replace 75 GW of Caol Plant Closures by 2020
"the Midwest Independent Transmission System Operator (MISO) recently performed an analysis which concluded that replacing (only) 12 GW of coal generation with gas-fired generation would lead to gas deliverability problems."

This specter of a surge in demand for natural gas is made all the more concerning when one considers the EIA projection of incremental gas production over the next decade. Shale gas output is projected to increase significantly but this growth will largely be offset by declines in conventional wells and other traditional sources of gas supply. In fact, all of the projected incremental gas production predicted by EIA would be needed to replace closing coal plants, leaving no new supply for the vast infrastructure we are building, ranging from new industrial facilities to gas vehicles. There are over 65 million homes in the United States dependent upon gas. Construction of wind turbines and solar panels proceeds apace. And each of these intermittent sources requires natural gas backup.

Where Would We Get the Gas?

Where Would We Get the Gas?
Thus, no new gas would be available for:
  1. new manufacturing
  2. gas vehicles
  3. export
  4. wind turbines back up
  5. home heating

Why electric reliability is at risk:

Lest one think that sources other than coal can provide electricity even close to the scale needed in the next decade consider six basic realities:
  1. No new nuclear plants will come online
  2. No major hydroelectric facilities will be built
  3. Wind turbine additions are stalling
  4. The United States will have 28 million more people
  5. We expect the economy to increase 27%
  6. Over 90% of our new gas will have to come from shale fracturing, a source whose sustainability, price and environmental impact are all still unknown.
“Electricity use and gross national product [are] strongly correlated. The relationship... is so important that it should be considered in developing... energy and economic policies... to promote electro technologies... to lower the real cost of electricity.”
National Research Council, 1986

Not with a bang, but a whimper

"2012 North American wells with peak rates greater than 1000 barrels of oil equivalent daily [are] leading indicators of potential resource play hotspots. The vast majority (99%) are in well-known resource plays. This observation supports our view that the hunt for new resource plays is increasingly difficult,”
Bernstein Research, 2013
Written By:
Dr. Frank Clemente