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U.S. Natural Gas-Fired Power Capacity Seen Rising 8% By 2018

Natgas fracking

The U.S. electricity industry plans to raise natural gas-fired generating capacity by 8 percent in 2018 compared to existing capacity as of the end of 2016, the Energy Information Administration (EIA) said on Monday.

Based on information reported to EIA, the power-generating industry has planned to increase natural gas-fired generating capacity by 11.2 gigawatts (GW) this year and 25.4 GW next year. If the new net additions go online as planned, annual net additions to natural gas capacity would hit their highest levels since 2005, EIA noted.

The planned increases of natural gas-fired power generating capacity come after five years of net reductions of coal-fired electricity generating capacity. Between the end of 2011 and end-2016, available U.S. coal-fired generating capacity dropped by an estimated 47.2 GW, or by 15 percent.

Due to environmental regulations and low prices of natural gas, the U.S. electricity industry has been retiring some coal-fired generators and converting others to natural gas-fired capacity. Increased shale gas production was one of the main reasons for the low cost of natural gas delivered to power generators, the EIA said, noting that prices dropped from an average of US$5.00 per million Btu (MMBtu) in 2014 to US$3.23/MMBtu in 2015.

Related: Oil Prices Spiral Lower On Signs Of Strong U.S. Oil Recovery

However, according to EIA’s January 2017 Short-Term Energy Outlook (STEO) the Henry Hub natural gas spot price averaged US$2.51/MMBtu in 2016 and is expected to increase to an average of US$3.55/MMBtu this year and US$3.73/MMBtu next year.

Last year prices ranged from US$1.611/MMBtu hit on March 4, 2016, to the highs of US$3.902/MMBtu reached on December 28, 2016.

The expected price increases could lead to power generators lowering their use of natural gas-fired capacity, and despite additional natural gas-fired capacity in 2017, the natural gas share of total U.S. generation is seen dropping to 32 percent this year from 34 percent last year, while coal’s share of generation is expected to increase to 32 percent from 30 percent.

Nevertheless, by 2018, the planned expansion of total natural gas-fired capacity would more than offset the higher-prices effect, and would potentially lower utilization. The STEO sees natural gas and coal generating 33 percent and 32 percent of electricity in 2018, respectively.

By Tsvetana Paraskova for Oilprice.com

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