January 11, 2011

Natural Gas: A Long and Expensive Bridge

This report on the possibilities for the substitution of natural gas for coal in electricity generation has some interesting findings, suggesting the existence of severe obstacles to the widespread substitution of gas for coal. The head of the American Public Power Assocation summarizes the findings as follows:
--Overall demand for natural gas would increase from 23 trillion cubic feet per year to 36 Tcf per year – a nearly 60 percent increase – with two-thirds of it serving electric power plants, up from just under one-third today.

--Certain areas of the country, such as the East Coast and Central Plains states, have significantly more pipeline capacity issues and gas storage problems than other areas. The pipeline capacity in 21 states would be inadequate to meet the extra demand from fuel switching. The estimated cost of the new pipeline capacity needed to meet this increased demand would be approximately $348 billion.

--There exists a common misconception that existing coal-fueled units can be retrofitted to burn natural gas, but virtually all conversions to date have been replacements, not retrofits. Combined-cycle gas-fired generation costs roughly $1 million per megawatt, (installed), so replacing the existing 335,000 MW of coal-fueled generation should cost in the range of $330 billion.

--Natural gas storage capacity will need to increase by 1.4 trillion cubic feet, at a cost of close to $12.5 billion. However, natural geology limits the opportunities to build new storage facilities where they are needed. The study points out that almost half the states have inadequate or no natural gas storage capacity
The study estimates that the price tag to change all of the nation’s coal-fueled power plants to natural gas would be $750 billion. The magnitude of those costs suggests that natural gas must be more than a bridge fuel because utilities are not likely to invest that much and financial institutions are not likely to finance those investments other than on a long-term basis.

Fuel switching also poses operational challenges for electric utilities, such as the requirement to order or “nominate” natural gas in advance of its use, curtailments that must occur should supply or pipeline capacity run short, or unforeseen events such as hurricanes that could increase natural gas prices or restrict supply.

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