US natural gas demand to increase up to 5 Bcf/d as coal exits: S&P – Natural Gas | Platts News Article & Story

Tougher federal emission standards will force more coal plants to retire between now and 2020, increasing natural gas use for power by between 2.7 Bcf/d and 5 Bcf/d, Standard & Poor’s Ratings Direct said in a report Tuesday.

S&P assumed that gas will replace the anywhere from 40 GW to 75 GW that S&P predicts utilities and independent power producers will sideline because of the Environmental Protection Agency’s Cross State Air Pollution Rule and Mercury Air Toxins Standard, which are set to take effect next year.

“Although renewable [energy] growth will form an important part of future electricity supply, low natural gas prices are swinging the pendulum in favor of a significant build-out of natural gas plants,” S&P said in a report on the future of coal and the power industry.

The increased demand for gas as coal-fired power plants are taken out of service will boost gas prices to the $5/Mcf range by 2016-2017, S&P predicted.

If more coal plants than expected retire, something S&P said is a possibility as states work to reduce greenhouse gases to meet EPA’s proposed Clean Power Plan, new demand for gas could reach as high as high as 6 Bcf/d to 8.5 Bcf/d, S&P said.

But, any rise in gas prices will be capped by “the impressive shale gas resource, ongoing rig count and well productivity gains, the meaningful backlog of drilled but not yet producing wells, and associated gas production growth from increased oil drilling,” S&P said.

S&P’s base case predicts the retirement by 2020 of 30 to 40 GW of coal on top of the 24 GW already announced. S&P projects increased gas use of between 3.4 Bcf/d and 4 Bcf/d in the case of 54 GW to 64 GW of coal retirements, S&P’s likely scenario.

Scheduled coal capacity retirements across independent system operators are projected to total 23.8 GW between 2015 and 2020. Adding the actual capacity retirements in 2012 and 2013, and expected retirements in 2014, the total rises to 42.1 GW, boosting gas demand by 2.7 Bcf/d, according to the report.

The MATS rules will account for half of the planned retirements, S&P said. Among ISOs, the MATS rule is likely to impact PJM Interconnection the most, given its significant coal-fired capacity and dependence on Appalachian coal, the report said. PJM accounts for 20.2 GW of the 42.1 GW in coal generation capacity expected to be taken offline between 2012 and 2020.

Greenhouse gas rules may expose another 35 GW of coal capacity to retirement.

“While on the one hand MATS is spurring the utility sector to invest billions of dollars on scrubbers, bag houses, etc., on the other, the greenhouse gas rules could be so stringent as to hasten the retirements of the power plants, resulting in the stranding of these assets’ costs,” the report said.

Because the curve of natural gas futures prices is essentially flat, S&P noted that development of renewables will be delayed by at least two decades in favor of cheap, clean gas.

“As natural gas struggles near $3.50 to $4/Mcf, some fear the stunting of clean energy investment growth, while others fear that generating portfolios could be over-reliant on the historically volatile fuel,” S&P said.

“Ultimately, a growing swath of observers see the US potentially repeating its past with abundant fossil fuels, unless the enthusiasm for natural gas tamps down and the [power] industry considers a broader energy policy,” S&P said.

Nonetheless, S&P predicts coal’s demise is in the cards.

“Coal-fired generation essentially benefits from a hidden subsidy in terms of absence of carbon regulation,” S&P said. “In the next few years, we see permanent erosion in using this fuel for power generation as greenhouse gas regulations advance and more coal units retire.”

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