The Impact of Shale Gas on the US Power Market

Here in the U.S., shale gas is creating jobs, reducing energy costs, and even adding to the revenue coffers at the local, state, and federal levels. Emerson’s Alan Novak, Director of the alternative energy and mining and metals industries, highlights its impact on power generation.

Emerson's Alan NovakIn previous posts, we have discussed the potential impact of the US shale gas boom on various industries and the global energy market. It is also having a significant impact in its more traditional role as a fuel for power generation.

A recent Wall Street Journal article “Coal-fired Plants Mothballed by Gas Glut” highlights the challenges facing US power generators with large coal-based fleets. Coal-fired plants that were designed to run continuously and provide a base load to the power grid are, in some cases, being forced into intermittent operation due to the low cost of natural gas.

Source: InsideFutures.com, http://jimc.me/UTfNgB

This is also reflected in power generation statistics from the US Energy Information Administration (EIA),

Source: OilVoice.com http://jimc.me/Ov5Vue

…and in US coal consumption data from the same source.

Source: SeekingAlpha.com http://jimc.me/Ov6hRx

Cheap gas has not however shut down the US coal industry however; it just means that more is available for export.

Source: SeekingAlpha.com http://jimc.me/Ov6hRx

So what does this mean long term for the US power market?

That picture is far from clear. In just the last week, the US Energy Information Administration issued its September Short-Term Energy Outlook with a cautionary note regarding the dash to gas: “Because of the projected increase in natural gas prices relative to coal, EIA expects the recent trend of substituting coal-fired electricity generation with natural gas generation to slow and likely reverse over the next year.”

And its projections for 2013 show coal generated electricity gaining, rather than losing, market share.

Source: EIA.gov http://jimc.me/Ov6WTg

Will increasing demand drive up the price of natural gas in the US? Only time will tell—but if it does, the impact will be felt well beyond the US power market.