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COLUMN-New wave of power plants is fuelling U.S. gas demand: Kemp
October 4, 2016 / 4:50 PM / a year ago

COLUMN-New wave of power plants is fuelling U.S. gas demand: Kemp

(John Kemp is a Reuters market analyst. The views expressed are his own)

* Chart 1: tmsnrt.rs/2dOroBg

* Chart 2: tmsnrt.rs/2dOrHvX

* Chart 3: tmsnrt.rs/2dKGyre

* Chart 4: tmsnrt.rs/2dKHFan

By John Kemp

LONDON, Oct 4 (Reuters) - The United States is experiencing a structural increase in gas demand with more gas-fired power stations operating more hours per year and consuming a record volumes of gas.

But domestic gas production is turning down, with output nearly 4 percent lower in July 2016 compared with July 2015 ("Falling U.S. gas output meets stronger demand", Reuters, Oct 3).

Growing demand for gas and shrinking supplies are not sustainable, so gas prices will have to rise to encourage more drilling and limit the use of some gas-fired power plants.

U.S. power producers had 448 gigawatts of gas-fired generation capacity in July 2016, an increase of 25 gigawatts since the end of 2012, according to the Energy Information Administration (tmsnrt.rs/2dOroBg).

Installed gas-fired capacity is scheduled to grow by another 11.5 gigawatts to 459 gigawatts by the end of 2017, when it will be almost 9 percent higher than five years earlier.

Most of the extra capacity uses combined-cycle technology. Total gas-fired capacity will have risen nearly 9 percent between 2012 and 2017 but combined-cycle will increase by almost 14 percent over the same period (tmsnrt.rs/2dOrHvX).

Historically, most gas-fired power plants burned gas in a boiler to raise steam (similar to a coal-fired plant) or combusted it directly in a gas turbine (similar to an aircraft jet engine).

Steam turbines and especially combustion turbines waste lots of heat and are relatively inefficient and expensive ways to generate electricity.

But they can ramp production up and down more quickly than coal-fired steam turbines, which made them ideal for meeting short periods of peak power demand in summer and winter.

Used mostly in peaking mode, gas-fired steam turbines were used for less than 12 percent of the time on average in 2015 while combustion turbines were used less than 7 percent of the time.

Combined-cycle units, however, are designed to operate far more efficiently: gas is first burned in a combustion turbine and then the exhaust heat used to raise steam in a boiler.

Both the turbine and the boiler can be used to drive generation sets, enabling more of the fuel's energy content to be converted into electricity.

Combined-cycle units are designed to provide baseload throughout the year rather than just during periods of peak demand.

The average combined-cycle plant operated more than 56 percent of the time in 2015, according to the Energy Information Administration.

CAPACITY FACTORS

Capacity factors for combined-cycle plants have been trending upward over the last few years as they replace coal-fired units thanks to stricter emissions regulations and falling gas prices.

The average gas-fired combined-cycle plant operated for the equivalent of 4,932 hours at full power in 2015, up from 4,489 hours in 2012, an increase of almost 10 percent.

Average coal unit operation dropped to the equivalent of 4,783 hours from 4,981 hours over the same period ("Average utilization for natural gas combined-cycle plants exceeded coal plants in 2015", EIA, April 2016).

Capacity factors at combined-cycle units continued to increase in 2016, while coal-fired power plants sat idle more of the time, thanks to low gas prices.

The proliferation of combined-cycle plants with high capacity factors is driving a big structural increase in gas consumption and tightening the gas market.

Unusually high temperatures across the most populous parts of the United States since the end of May helped drive record gas combustion by power producers this summer (tmsnrt.rs/2dKGyre).

But with more gas-fired power plants being installed and running for more hours, underlying gas demand has been increasing, whatever the weather.

With more combined-cycle capacity due to come online, gas consumption will continue to increase, other things being equal.

The combination of rising gas consumption with stagnating or falling gas production is clearly unsustainable in the medium term (tmsnrt.rs/2dKHFan).

Gas prices will have to rise to reverse the slump in gas production and cut capacity utilisation at combined-cycle plants to conserve fuel.

The EIA forecasts gas use in the power sector will decline by 2.3 percent in 2017 as rising gas prices spur a modest switch back towards coal ("Short-Term Energy Outlook", EIA, September 2016).

Editing by David Evans

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