APPA Releases New Natural Gas Study

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On July 7, 2010, the American Public Power Association (APPA) released the results of a study that examines the necessary new infrastructure investments and other implications on natural gas and deliveries to electric utilities—should new rules from Congress or EPA limiting carbon emissions or other pollutants result in a shift away from coal toward natural gas to generate electricity.

“There is a significant body of regulation underway, and the potential for new regulation or legislation that will impact coal plants in particular,” said Mark Crisson, president and CEO of APPA. “This study raises questions and concerns about the significant hurdles utilities would face converting from coal to natural gas in the face of these regulations. Other studies have addressed supply. We commissioned this study, because we are concerned about just how utilities would extract, store, and move natural gas to where it is needed in a reliable, sustainable, affordable, and environmentally sound way. It strongly suggests that policymakers will need to take a fresh look at the regulations and incentives to make sure the problems identified in this study are addressed going forward,” Crisson concluded.

Entitled “Implications of Greater Reliance on Natural Gas for Electricity Generation,” the report takes a detailed look at natural gas demand, supply, transmission and storage infrastructure, and the operational considerations that electric utilities will need to take into account if carbon emission rules require a switch from coal to natural gas.

Specifically, the report finds that:

  • Investments in pipeline capacity to meet the additional natural gas demand will need to total approximately $348 billion, should all coal fired generation need to be replaced with natural gas. The magnitude of this investment is inconsistent with the much touted idea of natural gas as a temporary “bridge fuel.”
  • Storage capacity will need to increase by 1.4 Trillion Cubic Feet (Tcf) at a cost of close to $12.5 billion and geology limits the opportunities for siting new storage facilities.
  • Operational considerations (such as the requirement to nominate natural gas in advance of its use, curtailments that must occur should supply or pipeline capacity run short, or unforeseen events such as hurricanes which could increase natural gas prices or restrict supply) are further obstacles to fuel switching.
  • Certain areas of the country, such as the East Coast and Central Plains states, have significantly more storage and capacity problems than other areas.

While conventional wisdom indicates it is possible to retrofit existing coal fired units to burn natural gas, virtually all conversions achieved to date have been replacement units, not retrofits. The cost to build new gas fired units to replace existing coal units would be in the range of $330 billion. This amount does not include the cost of outstanding debt utilities have incurred in building their existing fleet of coal fired power plants.

If all existing coal fired generation were to switch to natural gas, overall demand for natural gas would increase from 23Tcf per year to 36 Tcf per year, a nearly 50% increase, with two thirds of it serving electric power plants, up from just under one third today.

Supplies of natural gas are adequate to meet demand, but the cost of those supplies to serve demand levels will be potentially much higher than today. Potential EPA regulations governing techniques such as hydraulic fracturing could impact both the cost and supply of natural gas.

The study, commissioned by APPA with support from the Utility Air Regulatory Group (UARG), was conducted by Catherine (Katie) Elder, senior associate, Energy and Resource Analysis, at the Aspen Environmental Group. An Executive Summary and a complete copy of the study can be accessed by sending an e-mail to [email protected]; simply include the words “APPA NATURAL GAS STUDY” in the subject line of the e-mail.

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