Record gas use by US utilities fails to drive up price

Unprecedented Burn

To make a dent in gas inventories, the power industry will need to burn at least 4.5 billion cubic feet more per day on average for the year above 2011 levels, according to data compiled by Bloomberg New Energy Finance.

That is “absolutely unprecedented, but not out of the question,” Charles Blanchard, fossil fuels analyst for Bloomberg’s New Energy Finance unit, said in an e-mail.

Such consumption would shatter the all-time monthly gas generation record of 121 terawatt-hours, set in August 2010. Blanchard thinks the sector could reach around 130 terawatt- hours during the summer months, but cautioned recent forecasts of cooler, El Nino-influenced weather “would be terrible for gas.”

The power sector is predicted to account for 35 percent of total U.S. gas demand this year, up from 31 percent last year, Energy Department data show. The trend has accelerated as gas prices fell in much of the country below coal, traditionally the second-cheapest source of power behind nuclear energy.

Coal’s Declining Role

Gas at the Henry Hub in Louisiana, the delivery point for New York futures, averaged $2.60 per million British thermal units in February, while Central Appalachian coal averaged $3.06 per million Btu, Energy Department data show.

Coal remains the leading source of power in the U.S., but has fallen to 37 percent of U.S. electricity generated during January and February, combined, from 46 percent a year ago, Energy Department show.

“For the first time since the 1970s, we’ve seen coal’s share of energy production fall below 40 percent,” David Herr, leader of Duff & Phelps’ energy and mining practice, said during a March 28 webcast. In 2010, “coal was sitting at 50 percent, where it had been for the last decade.”

Companies such as Duke, Dominion and Southern already had been increasing their reliance on natural gas in anticipation of tougher federal pollution standards and as gas prices began falling from a three-year peak on July 2, 2008 of $13.69 per million British thermal units.

Using Spare Capacity

Falling wholesale electricity prices also spurred the switch by making it uneconomical for power producers to retrofit older, smaller coal-fired plants to comply with tougher federal emissions standards, Herr said.

As gas became the preferred fuel source, Southern and other power producers fired up generation capacity built after the last gas-price plunge a decade ago.

Southern ran its combined-cycle gas turbine fleet at a near-record 70 percent of capacity during the first quarter, doubling the plants typical use, Thomas Fanning, Southern’s chairman and chief executive officer, said in an April 25 phone interview.

Southern, whose energy production is nearly as great as the country of Australia, expects to derive 47 percent of its power from gas this year and 35 percent from coal. Five years ago, the company produced 70 percent of its power from coal and 16 percent from natural gas, Fanning said.

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