Natural gas power burn growth has slowed in recent years and the attributed reasons include stagnant electric load, the impacts of increased renewable generation, and gas-on-gas competition. Specifically, gas-on-gas competition is the assumed result of new lower heat rate gas plants coming into the generation stack and displacing older higher heat rate plants which would result using less natural gas to generate the same amount of electricity (all other things being equal). In this commentary, we will look at just how prevalent is power burn gas-on-gas competition in the current market with particular focus on new plants versus existing plants in the Atlantic Seaboard and Appalachia since 2014. Presumably, if new efficient gas plants are coming into the generation market, can we assume that older gas plants are burning less gas?
The chart above shows the amount of natural gas interstate pipeline deliveries on a regional level to power plant meters that are new meters since July 1, 2014. This proxy for new power plants has taken an impressive 3 plus Bcf/d of deliveries during summer 2017 with Appalachia and the Atlantic Seaboard representing the two largest regions with increased new plant gas burn. A good example of these new plants is Dominion Energy’s Brunswick County Power Station which is a 1,358 MW combined-cycle plant that started service in April 2016 located in south central Virginia and has average deliveries off Transco of 170 MMcf/d year to date 2018.
In order to understand power burn, we need to look at total generation for the two regions. In the chart above, total generation in the Atlantic Seaboard is up by 5% from 2014 to 2016, and gas increases have outpaced coals declines. While in Appalachia total generation is down 4% with coal declines outpacing gas gains. The impact of low natural gas prices can be seen in both regions in the gains of natural gas generation while coal has declined. Coal retirements and low coal plant utilization are the dominant drivers of gas power burn gains, while total generation growth in the Atlantic Seaboard was also a tailwind.
When we look at power burn in the Atlantic Seaboard and Appalachian regions broken out by ‘new plants’ (plants with new meters since July 2014) and existing plants (plants in service pre-July 2014), we can see that existing plants have maintained power burn levels at around 2 Bcf/d in Appalachia while Atlantic Seaboard existing plants have actually grown and are approaching 1.75 Bcf/d year to date. Meanwhile, new plants have grown strongly in Appalachia and the Atlantic Seaboard regions. It would appear power burn gas-on-gas competition is not yet impacting gas burns in the Atlantic Seaboard and Appalachia. This story still has more room to run however as there are still many more new natural gas power plants coming to market – a sample of a few below:
- Lackawanna Energy Center in Lackawanna County PA – 1,480 MW
- Greensville County Power Station in Greensville County VA – 1,588 MW
- Westmoreland Generating Station in Westmoreland County PA – 925 MW
The question remains– with many new large gas plants set to come online in coming months, will we see increased gas-on-gas competition in the near future? Will existing plants power burn decline once these larger new gas plants start operating especially as we enter peak generation season in summer 2018? Additionally, if coal generation declines stop, how will this impact power burn? To follow these developments in the market, subscribe to the BTU Analytics’ Henry Hub Outlook or request information here.