Natural Gas Intelligence
Bentek: Don't Count on Fuel-Switching, Really

Friday, August 06, 2010

Anyone counting on stricter air emissions rules to drive a gas-fired power generation buildout and put a higher floor under natural gas prices is going to be disappointed -- or at least is going to have to wait a while, according to Bentek Energy LLC.

In its latest Market Alert, Bentek continues to beat the drum for relatively low gas prices on the strength of growing supply from gas shale plays and an expectation that gas-fired generators are not waiting in the wings to save the day for the bullish case on gas prices. Bentek said all the coal-to-gas switching among power generators in 2009 was not a harbinger but a "head fake," and it won't be coming back.

"The higher gas burn in 2009 was interpreted by some as evidence of a possible ongoing upswing in the demand curve to help offset the growth in shale gas production," said Rusty Braziel, Bentek Energy managing director. "But the dynamics of coal-to-gas switching in 2010 have turned out much different. And when we look forward to the 2011-2015 timeframe, the most likely scenario is for moderate levels of coal-to-gas switching and increases in gas-fired power generation demand."

Fuel-switching to gas last year among power generators, according to Bentek, was due to:
• Gas prices that were mostly below $4/MMBtu, leading to tighter coal-gas spreads;
• Moderate weather and relatively weak overall demand, leaving generating capacity available for switching; and
• Normal stockpiles of coal.

This year gas prices have been higher, hot weather has led to higher demand from power generation -- limiting capacity available for switching -- and high coal stockpiles have forced utilities to burn more coal," Bentek said in its alert.

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