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Natural gas-fired power capacity to jump in next two years, EIA says

Power companies will add more natural gas-fired generating capacity in the next two years than they have since 2005, the Energy Information Administration said on Jan. 30.

According to data submitted to the EIA, gas-fired capacity will grow 8% between the end of 2016 through 2018, with the bulk those new power generators coming online in 2018. EIA forecasts 11.2 GW of new gas-fired additions in 2017 and 25.4 GW coming online in 2018.

Cheap and abundant shale gas is the primary driver of the new additions, EIA said, noting that many of the new plants are being built in the mid-Atlantic and Texas, homes to the largest shale gas plays in the country. "Expanding natural gas pipeline networks also help support growth in natural gas-fired electric generating capacity," EIA said in its "Today in Energy" note for Jan. 30.

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The cost of gas delivered to electric power plants is expected to rise in both 2017 and 2018, after five years of declines, EIA said. Henry Hub NYMEX futures contracts for 2017 averaged $3.457/MMBtu after trading on Jan. 27, while the 2018 strip averaged $3.116/MMBtu, according to S&P Global Market Intelligence data. EIA also noted that coal-fired generating capacity has been on the decline for the past five years, with an estimated 47.2 GW, a 15% reduction in the coal fleet, retired between 2011 and 2016. "The electricity industry has been retiring some coal-fired generators and converting others to run on natural gas in response to the implementation of environmental regulations and to the sustained low cost of natural gas," EIA said.

That price rise will cause a small cut in natural gas' share of total U.S. generation from 34% in 2016 to 32% in 2017. Coal-fired power generation will increase 2 percentage points to 32% of U.S. generation in 2017. By 2018, the amount of new gas capacity will offset the effect of higher (compared to 2016) gas prices, resulting in gas gaining another 1 percentage point of capacity share to 33% of total U.S. generation.

The EIA said gas-fired power plants can be quickly planned, permitted and built, but rising gas prices in 2017 could lead developers to postpone or cancel planned additions. "Construction timelines for these plants are relatively short: more than half of the natural gas-fired generating capacity scheduled to come online in 2017 and 2018 was not yet under construction as of October 2016," EIA said.