Dow Jones Gas vs. Coal feature

FYI
---------------------- Forwarded by David W Delainey/HOU/ECT on 07/13/2000
08:40 PM ---------------------------

Daniel Reck
07/10/2000 06:03 PM
To: David W Delainey/HOU/ECT@ECT
cc:
Subject: Dow Jones Gas vs. Coal feature

FYI

=DJ Pricey Natural Gas May Alter New US Power Plant Options

HOUSTON (Dow Jones)--High natural gas prices could slow the stampede to
build
as much as 140,000 megawatts of new electric generation across the U.S. and
give
new coal technology the boost it needs to compete economically with gas in
the
future.
While market observers say the recent level of the price of natural gas -
above $4.00 per million British thermal unit since late May - may not be
sustainable, many expect gas to remain above $3.00/MMBtu for the foreseeable
future.
The jump in gas prices is blamed on a number of factors, from increased
demand
to fuel new power plants to stagnant U.S. gas production and a lack of
available
gas reserves in storage.
Pricier gas could create a variety of effects on future electric
generation:
from damping interest in building some new gas-fired plants to improving
economic prospects for investment to upgrade or build new coal-fired plants.

Current gas prices are off the chart when compared to existing forecasts
from
the Energy Information Institute, part of the U.S. Department of Energy. EIA
projects the average U.S. wellhead price of gas will only rise to
$2.81/MMBtu by
2020, up from an average of $1.96/MMBtu in 1998, a jump of 43%. EIA predicts
coal prices will fall by 28% during the same period.
Continued high natural gas prices may mean some proposed combined-cycle
gas
plants are never built, predicts a Midwest utility coal buyer. "It's awfully
hard for a combined-cycle gas plant to compete with coal. No way they can do
it
at these prices."
However, a recent report from Raymond James and Associates Inc., concluded
that gas-fired generation will still be economical this summer even if gas
prices climb above $7.00/MMBtu because of high power prices in most regional
US
wholesale markets.

Future Gas Supply Questioned; Coal Won't 'Go Away'

"The gas turbine generation trend is not over, not by a long shot," said
the
Raymond James report. "Gas turbines use gas more efficiently than the
nation's
fleet of older, conventional boiler-driven generators that are fired by gas.
The
efficiency gains enabled by gas turbine generation will be more valuable as
gas
prices rise."
While gas-fired plants are much cheaper and quicker to build than
traditional
coal-fired plants, many industry observers doubt that U.S. gas supply can
grow
to meet future demand, expected to reach 30 trillion cubic feet or more per
year
by 2020.
"Coal will not go away," said Steve Bergstrom, president of Dynegy Inc.
(DYN).
"The coal industry will figure it out. There are too many jobs involved and
it's
too cheap."
Bergstrom expects the rapidly expanding appetite for electricity across
the
U.S., which is growing 3% per year, will require additional generation from
many
fuel sources.
"You'll see gas will be used in most of the additional generation for the
next
four to five years," he predicted. "In the latter half of the decade, you'll
see
other alternatives, like coal, come into play. Technology will create
changes."
Even some independent power producers who are rushing to build gas-fired
power
plants in the U.S. admit the recent price of gas, if prolonged, is a threat.

Bob Kelly, Calpine Corp.'s (CPN) senior vice president, said his firm's
fleet
of 40,000 MW of highly efficient natural gas plants to be in place by 2004
will
be profitable even with gas at $4.00/MMBtu, but he expects owners of
coal-fired
plants to make additional capital investment to keep those plants running as
well.
"If gas stays $4.00 forever, you'll see more coal plants. It will make
sense
to put scrubbers on," said Kelly.

Southern Co. Evaluating Coal-to-Gas Technology

Gas has to compete on price with other available fuel, agreed Bob Carter,
chairman of Panda Energy International. Carter told Dow Jones Newswires late
last month that the idea of new coal-fired generation is "very possible."
In fact, the jump in gas prices has given a boost to Southern Co.'s (SO)
effort to build a first-of-its-kind coal plant that seeks to be cost and
environmentally competitive with natural gas, said Charles H. Goodman,
Southern
Co.'s vice president for research and environmental affairs.
Southern, with major DOE funding, recently announced a major advance in
its
effort to utilize coal in a more efficient and less polluting fashion to
generate electricity.
The new process combines use of a "transport reactor," a device based on
existing technology used to "crack" crude oil into lighter products, to turn
coal into a gas which is then burned in a combustion turbine much like
natural
gas.
In its gaseous form, coal can be cleaned of many of its pollutant-forming
impurities such as sulfur dioxide, nitrogen oxides and particulate matter,
Goodman said.
The key to the technology is the ability to burn the coal gas in a highly
efficient gas turbine rather than burning it to make steam to turn a
turbine, he
added.
The new technology can produce 100 megawatts of power with two-thirds less
coal than a traditional boiler-type coal generator, said Goodman.
And higher natural gas prices could move this technology closer to a
reality.
"The urgency of getting on with this (coal technology) is the forecast for
gas
prices," said Goodman. "At $2.50/MMBtu, it's a bigger stretch for this coal
plant (to compete with gas) than at $3.00 or $3.50/MMBtu."

New Coal Technology May Also Address Emissions

Goodman said Southern hopes to make a decision in the second half of 2001
on
whether to build a commercial power plant with the coal gasification
technology
now being tested at Southern's Power Systems Development Facility in
Wilsonville, Ala.
If gas prices stay high or remain volatile, Goodman said that will
influence
the timing, size and other variables associated with building the first
full-size plant to burn coal gas in this manner.
"The $64 question is the price of gas," said Goodman. If gas is cheap and
plentiful, utilities will have a harder time investing in coal technology,
he
said.
But because the U.S. has abundant coal resources, Goodman predicts the
coal-to-gas technology could eventually be used not only for new plants but
to
repower existing coal plants in a way that addresses air quality concern.
Other partners in the Power Systems Development Facility include the
Electric
Power Research Institute, Foster Wheeler Corp. (FWC), Halliburton's Kellogg
Brown & Root (HAL), Peabody Group, Combustion Power Corp. and
Siemens-Westinghouse Power.

-By Eileen O'Grady, Dow Jones Newswires; 713-547-9213;
eileen.ogrady@dowjones.com <mailto:eileen.ogrady@dowjones.com<

(END) DOW JONES NEWS 07-10-00

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