Register with us today

and in less than 60 seconds continue your access to:Latest news headlinesAnalytical topics and featuresCommodities videos, podcast & blogsSample market prices & dataSpecial reportsSubscriber notes & daily commodity email alerts

Already have an account?

Log in to register

Forgot Password

Please Note: Platts Market Center subscribers can only reset passwords via the Platts Market Center

Enter your Email ID below and we will send you an email with your password.

  • Email Address* Please enter email address.

If you are a premium subscriber, we are unable to send you your password for security reasons. Please contact the Client Services team.

If you are a Platts Market Center subscriber, to reset your password go to the Platts Market Center to reset your password.

In this list
Electric Power

Natural gas generation bringing below-cost values: analyst

LNG | Natural Gas | Natural Gas (North American)

Uncertainty remains for US LNG project developers following initial China trade deal

Electric Power

Platts Market Data – Electric Power

Capital Markets | Commodities | Energy | Electric Power | Electric Power Risk | Natural Gas | Banking | Infrastructure | Structured Finance

Global Power Markets Conference, 35th Annual

Electric Power | Nuclear | Renewables

NextEra is 'living proof' utilities can be clean, low-cost, profitable: CEO

Natural gas generation bringing below-cost values: analyst

Houston — Even in places with abundant supply and demand, natural gas generation is trading hands at values well below the cost of a new build, attendees of the Gulf Coast Power Association's Spring Conference in Houston learned Tuesday.

Not registered?

Receive daily email alerts, subscriber notes & personalize your experience.

Register Now

In a session about oil and gas market fundamentals, Neel Mitra, Tudor Pickering Holt director for power and utilities, said his organization estimates the cost of building new natural gas combined-cycle generation at about $1,000/kW.

The Ironwood combined-cycle gas turbine generator in Lebanon, Pennsylvania, sold recently for about $900/kW, Mitra said, but "that's a very high marketer for combined-cycle gas generation," reflecting the fact that it has ready access to fuel from the Marcellus Shale and can feed into a robust transmission system in the PJM Interconnection.

In other markets, such assets sell in the range of $400 to $500/kW, he said, and in the Electric Reliability Council of Texas, the values range from $300 to $350/kW, he said.

Article Continues below...

The reason is that in most merchant markets, natural gas-fired generation is the marginal type of generation and gas prices have been quite low, he said.

"If there's going to be incremental gas capacity added, it's going to be in the regulated regions," Mitra said.

The nation's coal-fired generation fleet has decreased by about 50 GW over the past few years because of low-cost gas generation and increased environmental regulation, but that fleet may shrink by another 10 GW in 2016-2017, "mostly in the state of Pennsylvania," Mitra said.

"There have been a lot of new combined-cycle plants built on top of the Marcellus, and those coal plants can't compete with $1/MMBtu gas, with the regional basis," he said.

For the next few years, Mitra said he expects natural gas prices at the Henry Hub to range from about $2/MMBtu to about $3.25/MMBtu.

"We believe $2 is where you start to see switching," Mitra said.

At current gas prices, Mitra said his organization thinks only one Texas coal-fired plant is covering its fixed costs.

Some Texas-based coal fired generation has benefited by declining rail freight costs from the range of $25-$30/mt to about $15-$20/mt, he said.

"There's a lot of these guys that can hold on by mothballing over the summer," he said, but if they face an extra burden such as increased environmental scrutiny, "those plants are going to shut down, and that could happen as early as 2020."

When asked to guess what the prompt-month NYMEX natural gas price would be in mid-April 2017, Mitra estimated $3/MMBtu

Another speaker was Jen Snyder, Wood Mackenzie vice president for North American gas research, who estimated that price would be about $3/MMBtu. A third speaker, Tom Currah, chief revenue estimator for the Texas comptroller, said he thought the price would be about $3.05/MMBtu.

Snyder said gas prices would depend heavily on what Russian gas giant Gazprom decides to do in reaction to inroads made into the European market by US LNG shipments.

"If Russia tries to support the price and give up market share," she said, US LNG export capacity could operate at 70% to 75%, but if Gazprom lets the natural gas price in Europe fall to hold onto market share, "you could be looking at a utilization rate of 40% to 50%."

Snyder noted that production has begun to fall, and she suspects a "surprise to the upside" may occur in the winter of 2017, which would mean an average price for the year of about $3 to $3.25/MMBtu.

"We're watching now the ghost of drilling activity in 2015 ... in anticipation of higher prices in 2016 ... before the 'nonwinter' of this year," Snyder said. "There's just not enough happening to offset the declines in production from existing well."

Mitra said he also expects that the production slide may start to catch up with demand, with natural gas prices perhaps overshooting Tudor Pickering's long-term expectations of $3.25/MMBtu by as much as 40 cents in 2017.

Currah said his organization expects Henry Hub prices in the range of $3 to $3.50/MMBtu in calendar year 2017.

--Mark Watson,
--Edited by Richard Rubin,