Natural Gas Intelligence
EPA Rule Would Drive Regional Gas Prices Higher

Wednesday, August 24, 2011

With intentions of cutting power plant emissions, last month the Environmental Protection Agency (EPA) released its Cross-State Air Pollution Rule (CSAPR). However, an analysis by Bentek Energy LLC says the rule, an addendum to the Clean Air Act, would wreak havoc on power and natural gas transmission grids if implemented as planned.

"The magnitude of this rule has the potential to be quite significant and would create a number of consequences across energy markets," said Bentek Vice President Rusty Braziel. "The dramatic ramp-up in gas [power] plant utilization due to the EPA's ruling would lead to substantial gas demand increases and could exacerbate long-standing gas pipeline capacity constraints. Ultimately, this ruling could lead to much higher natural gas prices in a number of regional markets, assuming the rule stands in its current form."

Bentek said emissions from power plants in affected states would need to be "substantially reduced" to comply with the CSAPR. By 2014, SO2 and NOx emissions would have to drop 55% and 31%, respectively, when compared to 2010 levels. In order to comply with the CSAPR, the EPA is suggesting that power plant operators either switch to lower-emission fuel sources or install state-of-the-art emissions reduction equipment. Overall, new emissions equipment costs could exceed $20 billion.

The firm's market alert "EPA Rule Would Stress Power, Gas Grids" says the ruling could lead to a 35% increase (7 Bcf/d) in gas demand from power by 2014 and would force 50 GW of coal-fired power units to either be retired or converted to burn natural gas, resulting in a 15% drop in coal demand during the same period.

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