US natural gas demand to increase 3.29 Bcf/d under EPA plan: EPA

Washington (Platts)--2Jun2014/509 pm EDT/2109 GMT


US natural gas demand would increase 3.29 Bcf/d by 2020 as a result of the US Environmental Protection Agency's newly released plan to cut carbon dioxide emissions from power plants 30% from 2005 levels by 2030.

After 2020, gas demand would fall as energy efficiency measures reduced power demand, the EPA said. US gas demand averaged just under 71 Bcf/d in 2013, according to the Energy Information Administration.

The EPA Monday also predicted gas prices would increase between 9% and 12% by 2020. Based on Friday's closing price for the calendar year-2020 NYMEX futures contract, the EPA's estimate would price gas at $5.36/MMBtu-$5.50/MMBtu in 2020 if the plan becomes a rule.

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Retired coal-burning power plants will be replaced, at first by gas plants, then renewables, under the EPA's model, which foresees an eventual 11% decrease in power demand due to demand reduction technologies.

The plan most severely affects emissions from the roughly 600 coal-burning power plants in the US while benchmarking progress against the year 2005. Coal consumption will decline 25% by 2020, EPA estimated, then further decline another 30% by 2030.

Environmental groups, as expected, praised the effort, while coal and oil trade groups howled that EPA's proposal would increase energy costs, reduce the reliability of the electric grid and kill job growth.

Gas trade groups, meanwhile, opted for quiet notes of cooperation without seeming triumphant that the EPA leaned their way.

"As we consider EPA's proposal with our members and with our power generation customers, we agree the rules should be flexible and fair," Marty Durbin, CEO of America's Natural Gas Alliance, a trade group of shale gas producers, said in a statement. "We believe they should recognize the ability of natural gas to play an increasing role in the delivery of reliable, safe and clean power."

By choosing 2005 as the year against which emission are reduced, the US is nearly halfway to the 2030 goal. Carbon dioxide emissions peaked in 2007 and have been shrinking slowly as the result of both the great recession and by cheap shale gas replacing coal in baseload power plants.

The announcement resolves for stakeholders one of the most important aspects of the highly anticipated plan by leaving the base year as 2005.

As anticipated, the plan gives states flexibility in meeting the emissions standards either by mandating pollution control equipment or by implementing a plant that takes a portfolio approach in reducing aggregate statewide emissions. The plan will also allow states to work together in meeting those goals.

An example of a multi-state effort would be the Regional Greenhouse Gas Initiative, a cap-and-trade scheme formed to limit greenhouse gas emissions in nine participant states.

EPA has set a June 2016 deadline for states to submit compliance plans, but is using a "two-step" process that would give states more time if needed.

--Bill Holland, bill.holland@platts.com
--Peter Maloney, peter.maloney@platts.com
--Edited by Richard Rubin, richard.rubin@platts.com

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