Natural Gas for Electric Generation: Realizing the Potential

For a wide variety of reasons, many industry analysts believe that the amount of natural gas used for electric generation by utilities, independent power producers (IPPs), and industrial and commercial cogenerators will increase dramatically in the United States over the next 10 to 15 years.

In its 1994 Annual Ener~yO utlook, the Energy Information Administration predicts that annual natural gas use by electric utilities and IPPs will increase 52.3% (1.45 Tcf) between 1992 and 2000, and by another 16.8% (0.71 Tcf) by 2010. Meanwhile, the Gas Research Institute, in its 1994 Baseline Projection of U.S. Energy Supply and Demand, states that annual gas use by the same electric generators will increase 36% (1.04 Tcf) between 1992 and 2000, and by an additional 10.5% (0.41 Tcf) by 2010. Other groups, including the North American Electric Reliability Council and the National Petroleum Council have released similar forecasts.

The objective of this paper is not 
to introduce a set of
competing estimates. As noted,
enough well-established and
respected groups already do an
admirable job of this.

Rather, the purpose of this
paper is to point out the main
reasons why the natural gas
industry must be proactive
before it can take advantage of
the vast opportunity to market
its products and services to
electric generators.

Figure 1 lists some of the major
reasons why natural gas use for
electric generation is expected
to increase.

The environmentally benign
nature of natural gas relative to
other fuels figures prominently
on this list, as does the rise of
the independent power industry,
increased competition in the
electric industry, the relative
costs associated with constructing and operating gas-fired units, the potential for repowering older, existing coal and oil facilities, and, perhaps most importantly, the existence of a supportive federal government. For these and other reasons, it is not unreasonable to expect that the actual amount of gas consumed annually by utility and non-utility electric generators in the year 2010 may be considerably higher than the level that many forecasters currently allow-possibly in the range of 12-15 Tcf.

For the most part, however, the likelihood of this happening depends on actions taken by the gas industry itself. Its fate lies in its own hands.

The electric industry is entering
a period of intense competition
with the focus falling
increasingly on price of
service–especially power
generation. There will not be
one fuel or one generating
technology that clearly will be
the best resource selection for
all situations. Therefore, it is up
to the gas industry to ensure
that it does its utmost to market
its products and services
effectively, smooth the way for
potential new customers, and
make gas-fired generation as
competitive as possible.

The natural gas industry world
do itself a grave disservice if it
were to sit back and wait for the
forecasted increase in gas use to
develop entirely on its own.
Although the time may be ripe
for gas, there still are potential
problems that must be
overcome by an industry that is
still learning how to work
together effectively and speak
with one voice.

Figure 2 lists some of the major
obstacles the industry must
overcome if it expects gas use
for elecuicity generation to
increase appreciably.

Prominent among these are electric generators’ concerns regarding the volatility of gas prices and the reliability and deliverability of the existing transportation network. The lack of infrastructure to serve some markets, complicated nominating and purchasing requirements, and the reluctance of traditionally coal-based regions to embrace gas usage are additional obstacles facing the industry. Obviously, some of these issues are beyond the ability of the gas industry to address on its own, but many of the core issues only the industry itself can resolve.

In addition to the easily categorized "pros and cons" surrounding the potential for increased gas use, there also is a large set of "wildcard" issues, which, depending on how they play out, either could work in favor of the gas industry or against it. A listing of some of these issues appears in Figure 3.

The fuel costs of gas vis-a-vis orher hels, electricity demand growth rates, the development of market center hubs and storage facilities, and federal and state regulations affecting gas use all fall under the "wildcard" category with varying levels of impact on the potential for gas use by electric generators.

Again, it is within the gas
industry’s purview to affect
the outcome of a number of
these issues.

The gas industry must take
advantage of the favorable
political climate and its enviable
position now–especially since
new utility baseload plants,
many of which are projected to
be coal-fired, will be required
after the year 2000.

The next 10 to 15 years may
offer a once-in-a-lifetime
opportunity for the industry to
prove itself willing and able to
meet the needs of electric

The loftiest predictions of
increased gas use will mean little
if the industry does not act
proactively and take the lead in
marketing gas as the undisputed
fuel of choice.