Coal will fuel about 38% of US power supply this year, the Energy Information Administration says this week -- a somewhat dramatic drop of about 10% from last year and double the decline EIA had projected earlier. Natural gas-fired generation, in bold contrast, will rise a whopping 17% or so this year, almost double the increase the agency had estimated.
It goes without saying that the reason is natural gas. The point is brought home this afternoon, when the NYMEX May gas futures contract settled below $2/MMBtu -- at $1.984, the lowest settlement for a front-month contract since January 28, 2002. It seemed so inevitable; the only question has been what day it would happen. So now the ice is broken.
How long will it last? Nobody knows, of course. EIA says 2012's average Henry Hub price should average $2.51/MMBtu. It will go up next year, above $3 but less than projected earlier. Chesapeake Energy CEO Aubrey McClendon said at Platts Global Power Markets Conference last week that gas would surely be no more than $5/MMBtu "indefinitely."
Already, before today's NYMEX settlement, the price of gas delivered to power generators averaged $3.67/MMBtu in January, the lowest price for such deliveries since 2002, EIA reported.
Certainly these price outlooks only further boost the view that gas-fired generation is the only way to go for the foreseeable future, despite some power-sector worry about that. "Our greatest challenge is to avoid all gas, all the time," Duke Energy President and CEO Jim Rogers said at The New York Times energy conference today, echoing some other top utility executives who have warned of the risk of dependency on this historically volatile fuel.
Low gas prices may slow renewable and nuclear development, but they will not kill those resources, Energy Secretary Steven Chu said today at an energy conference sponsored by The New York Times. Promoting his own and the Obama administration's commitment to green power, Chu said a four-fold drop in solar module costs over the past three years, and a likely decline by half again in the next eight years, means renewables deployment will continue. And utilities' desire for fuel diversity will also mean future nuclear development he said.
On solar, he said DOE's research plan aims to produce solar power at a cost competitive with other fossil fuels by 2020: "The debate is not over if, it is when," he said.
At the same time, Barclays Commodities Research analysts reminded us today that given the current capacity surplus in much of the country, there is little reason for anyone to build capacity. Utilities are far more likely to buy power on the market. If people do build, it would be combined-cycle gas plants, which cost less for capital and fuel than most other things. But even then, the analysts said, as long as power supplies are in surplus, there is little incentive to build.
Capacity markets and energy-market tweaks won't do it, either, they said. It was interesting to hear the Barclays analysts say the fundamentals matter more than the mechanisms that system operators try to devise. Lots of people have criticized regional capacity markets because they have not prompted new power plant development as intended. But according to Barclays, "There is no market structure that convincingly encourages the addition of new capacity before the market falls short." Regardless of how a market is structured, "they all share one thing in common: power prices are at a discount to full-cycle replacement costs."
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