Many wonder how natural gas power plants could so quickly displace so much coal-fired generation. The nation went from 52% coal-fired electricity in 2002 to 48% in 2008 and then gas roared. Coal's share was down to 44% by 2010 and then to an incredible 34% by March 2012. How did that happen? Was there a massive wave of gas-fired power plant construction?
While some new gas plants are built each year, and some power plants can run on coal or gas, the main reason why gas captured quickly massive amounts of the electric generation market is that so much of the nation's existing natural gas fired capacity sits idle every day. Much of that capacity is new, efficient plant that was built during a gas plant generation construction boom that peaked from 1999 to 2002. Low gas prices begin to put that capacity to work.
Now a report by the American Clean Skies Foundation, that urges utilities and gas producers to sign long-term gas supply contracts, includes the fact that 62% of the nation's combined cycle gas turbines operated at less than 50% of their capacity during 2011. Simply astonishing!
Indeed, the report documents that only 7% of the 192,481 megawatts of combined cycle gas turbines operated at more than 70% of capacity (see page 16). Low gas prices are raising gas plant capacity factors, but massive amounts of significantly under-utilized gas capacity remain. That fact means that the switch to gas is far from over, if gas prices stay competitive with coal.
With so much gas capacity still sitting idle, natural gas could capture much more of the nation's electricity market, without the construction of any new gas power plants. The production of shale gas and the price of gas will tell the tale.
And so the market reality is simple. Slowing or stopping shale gas production, for whatever reason, is bullish for coal, while growing gas production is bearish.