POWER January 2013 - 42

2013 INDUSTRY FORECAST
Natural Gas-Fired Plants Continue
Rollercoaster Ride
The availability and low price of natural gas
enticed many U.S. utilities to fuel switch on
a grand scale in 2012. Increased demand has
put upward pressure on prices, moving coal
back to the top of the dispatch order in some
regions. Expect the price momentum to shift
often in 2013.
By Thomas W. Overton, JD
Courtesy: iStockphoto
A
n unexpected boom in gas production
as a result of advances in hydraulic
fracturing, combined with
an unusually mild 2011-2012 winter, sent
gas inventories spiraling to record high
levels. The traditional withdrawal season
ended two weeks early, with storage levels
touching bottom at an all-time high of
2,369 Bcf. The result was a crash in gas
prices, which spent most of April 2012
below $2.00/MMBtu. Henry Hub spot
prices finally hit a floor of $1.82/MMBtu
on April 20.
Awash in a sea of cheap gas-which
was now substantially cheaper on a MWh
basis than coal-plant owners across the
country threw standard dispatch plans out
the window and pushed open the throttles
on their gas turbines. Coal-fired generation
collapsed, while gas-fired power
surged. In May, for the first time ever, gas
power reached parity with coal power at
about 32% each. Coal plants that had long
been dispatched first as the core of baseload
capacity saw themselves sidelined as
peakers or idled altogether. Meanwhile,
many combined cycle plants that had seen
capacity factors around 30% were running
at 80% or higher.
42
What Goes Up Must Come Down
The U.S. Energy Information Administration
(EIA) projects that gas prices will average
$3.49/MMBtu in 2013, which means
they likely will spend some time above
$4.00. Many analysts project even higher
prices. Speaking at the LDC Canada Gas
Forum in Toronto in November, Scott
Speaker of J.P. Morgan projected an average
price of $4.25/MMBtu for 2013, with
continued growth beyond that. " I see relatively
good production, but high demand
going forward, " he said.
The $4 threshold is more than just psychological,
as it represents the general
point at which-with the higher transport
costs for coal factored in-coal regains a
cost advantage over gas. The EIA projects
gas power burn to fall 11.2% during 2013,
and some industry sources report that the
gas-to-coal switchback has already begun.
The drop in power burn is not expected
to reduce pressure on gas prices, however,
as residential, commercial, and industrial
demand is projected to surge, leaving overall
demand essentially unchanged for 2013.
1. Give and take. Natural gas consumption for electric power generation is expected to fall
this year, giving up some of the gains achieved in 2012, when historically low prices drove coalto-gas
switching across much of the Eastern Interconnect. Source: EIA, " Short-Term Energy
Outlook, " November 2012.
Electric power
100
90
80
70
60
50
40
30
20
10
Residential and commercial
Industrial
Other
7
6
5
4
3
2
1
2010
www.powermag.com
2011
2012
2013
-1
-2
-3
POWER | January 2013
Total consumption (Bcf/day)
Year-over-year change (Bcf/day)

http://www.powermag.com

POWER January 2013

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