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Msg  140469 of 605028  at  6/1/2014 12:01:13 AM  by


US gas demand could increase by 3-10 Bcf/d under EPA GHG rule: analysts

Washington (Platts)--30May2014/542 pm EDT/2142 GMT

US natural gas demand could increase by 3 Bcf/d to 10 Bcf/d by 2020 under an expected Environmental Protection Agency plan to reduce carbon dioxide emissions from power plants, analysts said Friday.

Using its authority under the Clean Air Act, EPA is expected Monday to announce proposed rules designed to limit the amount of COs emitted by existing power plants.

Gas will be one of the winners under every assumption about new source performance standards for existing power plants, analysts said Friday. They differed only on the size and scale of how much gas would be needed, saying that will depend entirely on how strict or lax the new regulations are on coal-fired plants.



President Barack Obama's Climate Action Plan calls for a 20% cut in carbon dioxide emission by 2020 but which year will serve as the benchmark from which to measure the cut is still unknown. There were no leaked copies of the plan circulating in Washington on Friday, a rarity in a notoriously talkative town.

Greenhouse gas emissions peaked in 2007, according to EPA data, and have since declined by 10% as a result of the economic slowdown and the increased use of suddenly cheap shale gas for power generation.

Using 2007 or earlier as a benchmark would put the US halfway toward the assumed 20% goal, reducing the impact on coal and dampening any increase in gas demand.

Using 2013 or 2014 as the benchmark would create the greatest potential reduction, but would not give states or utilities any credit for plants already retired in response to earlier regulations such as the Mercury and Air Toxics Standard.

The coal industry and coal states like West Virginia are expected to oppose whatever plan is unveiled Monday all the way through the rule-making process and into the federal courts.

ClearView Energy Partners' analyst Kevin Book said gas demand from the power sector will increase between 5.6 Bcf/d and 6.5 Bcf/d, assuming a target goal of 1,500 lbsCO2/MWh by 2020 is selected, down from the roughly 1,750 lbsCO2/MWh the nation's power plants emitted in 2013.

Book acknowledged that his projection includes an unrealistic assumption that natural gas will replace all of the roughly 50 GW of coal-fired power generation retired under the EPA rule. He also said any market share gained by renewables will come out of gas' market share.

"Getting down to 1,500 lbsCO2/MWh would imply a coal-to-gas swap of roughly 290 TWh/year in 2020," Book told his clients Friday. "This, in turn, could result in upper-bound, incremental power sector demand of between 5.6 and 6.5 Bcf/d and incremental coal shutdowns of between 47 and 55 GW over and above the 49.3 GW dues to be retired as a result of the MATS rule."

Erica Bowman, chief economist for America's Natural Gas Alliance, the trade group for the US' shale gas drillers, said the increase in gas demand could be higher or lower depending upon how the new regulatory regime is designed and enforced.

"At 3 Bcf/d, you have mild standards, mild enforcement," Bowman said. At 10 Bcf/d of new demand, ANGA's most aggressive estimate, CO2 reduction goals are more ambitious and implementation is more rigid.

At 6 Bcf/d "you have a hybrid approach," Bowman said, "with aggressive standards but flexible compliance."

US drillers can produce the multiple billions of cubic feet of gas needed to meet the new demand without sending prices outside a $4/Mcf to $6/Mcf range, Bowman said.

"Yeah, we can do this," she said. "If you look at how much we can pull out of the ground at $4/Mcf, we're getting so much more gas per well."

BNP Paribas' gas analyst Teri Viswanath said she expects the administration to use 2005 as the benchmark and claim the 10% reduction already achieved, predicting the amount of new gas demand will be easily met with little reaction in gas prices.

"While we see significant growth in electric power demand for gas over the next decade, this rule is not the primary source of this growth or the game changer that it has been labeled by some industry analysts," Viswanath told her clients Friday.

"The increased gas use resulting from carbon limits will likely be viewed more as a contributing rather than a leading driver of rising natural gas prices," she said.

Trading in the NYMEX gas futures contract on the eve of the new rule's announcement lent some credence to Viswanath's theory. Futures contracts for the years 2015 to 2020, years where new demand will show up, traded largely unchanged Friday afternoon.

--Bill Holland,

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