Feb. 17—Coal-fired electric generation plants are getting increasingly difficult to finance. Apparently, lenders are concerned that carbon cap-and-trade legislation will be passed by the U.S. Congress that may dramatically increase the cost and decrease the economic viability of high-carbon sources. Lenders are expressing this concern through higher rates, higher equity requirements and/or tighter security requirements. As access to capital gets more challenging and more expensive, projects are getting delayed or cancelled.



In the intermediate to long-term natural gas marketplace, this means higher demand for natural gas than would be the case if more coal-fired electric generators were built. Higher demand will likely lead to higher prices. Approximately 50 percent of new-generation capacity additions from 2009-‘11 are forecasted to be coal-fired, according to the Energy Information Administration. If 50 percent of those additions were instead natural gas-fired, natural gas demand would increase by more than 2.5 percent—a material increase in an already tight market.

Fortunately, natural gas supply is increasing to meet demand. First, trapped Rockies gas is increasingly getting to constrained markets through pipeline projects such as Rockies Express. Second, the United States is significantly increasing liquid natural gas vaporization capacity, and worldwide LNG liquefaction capacity is expanding. Third, some shale formations are beginning to produce significant supply. Finally, even the off-shore Gulf is beginning to see increased production levels. Collectively, these sources, along with existing supplies, should increase supply availability this year by approximately 1.5 percent and possibly more in the future.

Bottom line: We have growing supply and growing demand. Only time will tell which will grow at a faster pace and whether prices will remain at current levels or continue to go up. EP

Casey Whelan, vice president of strategic initiatives, can be contacted at cwhelan@usenergyservices.com.