The advent of shale gas has moved the peak of “peak-gas” into the future by some 250 years. This together with the fact that gas-fired power plant have the shortest construction times and the lowest investment costs of any form of power generation provides the possibility to hold down electricity generation costs. The increase in generation costs in recent times has been the natural consequence of the subsidy regimes for wind and solar power plants and the opportunistic rush to renewable power. Huge fortunes have been made by “green” developers as the subsidies have been milked – but consumers have only seen rising electricity prices.
A shale-driven glut of natural gas has cut electricity prices for the U.S. power industry by 50 percent and reduced investment in costlier sources of energy. With abundant new supplies of gas making it the cheapest option for new power generation, the largest U.S. wind-energy producer, NextEra Energy Inc. (NEE), has shelved plans for new U.S. wind projects next year and Exelon Corp. (EXC) called off plans to expand two nuclear plants. Michigan utility CMS Energy Corp. (CMS) canceled a $2 billion coal plant after deciding it wasn’t financially viable in a time of “low natural-gas prices linked to expanded shale-gas supplies,” according to a company statement.
Paradoxically it is the rush to build subsidised renewable power which now creates a new market for gas turbine power plants. The daily setting of the sun and the unpredictability of clouds and winds means that – on average – renewable power requires about 70% of its capacity to be backed-up – usually by gas. Furthermore the unpredictability of renewable power disturbs grid stability and creates the need for other “balancing” power which can be brought on stream quickly. Here too gas turbines provide the possibility of building relatively cheap power plants which have a fast start-up.
Mirroring the gas market, wholesale electricity prices have dropped more than 50 percent on average since 2008, and about 10 percent during the fourth quarter of 2011. …….
Shale Gas Boom
U.S. gas supplies have been growing since producers learned how to use hydraulic fracturing and horizontal drilling to tap deposits locked in dense shale rock formations. Gas prices have been falling since mid-2008, when a global recession sapped demand just as drilling accelerated in the gas-rich Marcellus shale in the eastern U.S., according to data compiled by Bloomberg.
Gas prices collapsed further in late 2011 on concerns mild winter weather in the U.S. will curb demand for the heating fuel. Gas is expected to stay below 2011’s average price of $4.026 for the next two years, priced at around $3.10 per million British thermal units for 2012 and $4 for 2013. ….
The gas glut is real in the US and is moving to Europe. Gas prices are coming down and electricity generation prices will follow. The gas turbine market had a boom in 2000 and again in 2007/8 and the next boom will come, I think, in 2013/14 when industrial production picks up after the current downturn.
Cheap gas is here to stay.