Energy / Hydraulic Fracturing

Electricity prices decline 50% as shale spurs glut

Shale Gas Boom

NextEra didn’t include new U.S. wind projects in its financial forecast for 2013, Lew Hay, chief executive officer of the Juno Beach, Florida-based company, said in a November conference call with investors.

NEW YORK, NY – “U.S. gas supplies have been growing since producers learned how to use hydraulic fracturing and horizontal drilling to tap deposits locked in dense shale rock formations. Gas prices have been falling since mid-2008, when a global recession sapped demand just as drilling accelerated in the gas-rich Marcellus shale in the eastern U.S., according to data compiled by Bloomberg.

Gas prices collapsed further in late 2011 on concerns mild winter weather in the U.S. will curb demand for the heating fuel. Gas is expected to stay below 2011’s average price of $4.026 for the next two years, priced at around $3.10 per million British thermal units for 2012 and $4 for 2013, according to Robert W. Baird (BADC) & Co., an investment bank based in Milwaukee.

New Gas Generation

Declining power prices may also make it unprofitable for utilities to install pollution controls on older coal-fired plants, adding to the wave of plant closures that are expected to result from new U.S. Environmental Protection Agency rules over the next two to three years, Pruitt said.

As much as 90 gigawatts of new generation, enough capacity to light 72 million homes and businesses, will be needed by 2015 to replace retiring coal plants and meet electricity demand, according to a Nov. 30 research report by Hugh Wynne, an analyst at investment bank Sanford C. Bernstein.

Cheap gas makes it difficult for rival forms of fuel to compete, said Sam Brothwell, a senior utility analyst with Bloomberg Industries, in a telephone interview. Historically, gas-fired generators have been the least expensive to build, offset by a higher fuel cost, Brothwell said. With gas falling below $3, ‘it makes all other forms of producing electricity look less competitive by comparison,’ he said.”

— Julie Johnsson and Mark Chediak, Bloomberg News

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