CERA analyst predicts coal may reclaim power markets from gas

Sept. 21, 2001
A Cambridge Energy Research Associates analyst said Friday competition from other fuels has added uncertainty to the long-term future of the US gas market.Several speakers at the GISB meeting said they expect a slowing economy, at least short term, in the wake of the Sept. 11 terrorist attacks in New York and Washington, DC.

By Paula Dittrick
Oil & Gas Journal

HOUSTON, Sept. 21 -- A Cambridge Energy Research Associates analyst said Friday competition from other fuels has added uncertainty to the long-term future of the US gas market.

"We do think the supply of gas is there. It's just a matter of the price of gas.... The market for the fuel is not as clear," Ed Kelly, CERA director of research for North America natural gas, told a Gas Industry Standards Board annual meeting Friday.

Several speakers at the GISB meeting said they expect a slowing economy, at least short term, in the wake of the Sept. 11 terrorist attacks in New York and Washington, DC. The slowing economy might delay the development of gas supplies, they added.

Kelly said, "We're choking on gas right now" but predicted the existing surplus will be worked off by 2003. Gas prices will become volatile again between 2003-06 because drilling activity already is declining and supply may become confined just as demand begins an upward path, he said.

"We could keep hitting walls of shortage and surplus," Kelly said of 2003-06. Beyond 2006, Kelly expects to see more gas coming on the market through increased imports of LNG and through the development of Arctic and western Canada gas.

"We tend to agree with the 30 tcf market (by 2011) as a measure of demand potential," Kelly said.

He said coal is threatening to become a bigger competitor than many in the industry might expect. "Coal demand is hitting records right now."

"Our own estimates of gas demand has come down considerably because if investment in coal begins to occur, then coal takes a lot of the power demand growth," away from gas, he said.

Meanwhile, he said renewables and solar are not standing still and gas could face competition from other fuels "by the time the time the economy gets going again."

Donato Eassey, first vice-president with Merrill Lynch & Co., said electric generation is the key driver for long-term gas growth, but he added that the economy remains the key.

"Natural gas cannot and will not be the only solution," Eassey said, adding he also expects coal and nuclear to remain competitors to gas.

Meanwhile, Jim Moore, senior vice-president for Williams Cos. Inc.'s gas pipeline group planning and development, said he expects gas-fired power generation will continue growing.

"Long term, I think our business economy is sound, and I think we will rebound," Moore said. "Our industry should stay focused on serving a 30 tcf market. Demand is going to span the country. I believe there is ample supply, but we need to develop it."

He predicted the gas industry would need a $35 billion investment through 2011 for additional pipeline capacity, new storage, and additional LNG import capacity to support growing demand.