Industry analysts Thursday predicted the US Environmental Protection Agency's newly issued Maximum Achievable Control Technology Rule, issued late Wednesday, would cause the retirement of roughly 50 GW of coal-fired power plants in the coming years with a subsequent uptick in demand for natural gas form the power sector.
Analyst Benjamin Salisbury at FBR Capital Markets predicted that gas demand would increase 4.2 Bcf/d by 2015 as 66 million tons of coal demand dropped out of the market from plant retirements.
The Hazardous Air Pollution MACT rule will require coal-fired power plants to limit their emissions of hazardous air pollutants, including mercury, by January 2015 with some flexibility for one- to two-year extensions.
Analyst Kevin Book at Washington-based ClearView Energy Partners believes that 17.4 GW of coal-fired power will be retired quickly as being too old and too small in generating capacity to be worth upgrading. That would indicate an almost immediate uptick in gas demand of 1.5 Bcf/d at standard heat rates.
The strict MACT rule represents an "upgrade-or-die" obligation for operators of these old, sub-scale electric generating units with a 2015 deadline, Book said.
By his estimate, regulated or independent power producer-owned coal units that are older than 30 years, not scrubbed and have a nameplate capacity of less than or equal to 350 MW, are the most likely candidates for retirement.
Analysts agreed the market that will be hardest hit by the need to retire old coal plants is the 13-state PJM market stretching from the Mid-Atlantic states west thorough Ohio and into parts of Indiana and Illinois.
Analysts predicted that PJM is looking at 15 GW of plant retirements by 2015 (with extensions), for a possible 1.3 Bcf/d of increased gas demand in a region containing the Marcellus and Utica shales.
"Many central Appalachian/northern Appalachian [coal] plants will require substantial capital expenditures to comply and with only a modest increased flexibility [on the part of the EPA], the bulk of these units will opt to retire," UBS power analyst Julien Dumoulin-Smith said Thursday.
While Dumoulin-Smith sees coal retirements accelerating in the current low-priced gas environment, ClearView Energy's Book notes that increased regulation of hydraulic fracturing by states trying to stay ahead of the federal government indicates that gas prices will go briefly higher in 2013 and 2014 to account for the regulatory burden, lessening gas' favorable comparison to coal.
If President Barack Obama wins reelection next year to a second term, then "fracking regulations likely to emerge during 2012 and 2013 could begin to inflate wellhead costs -- if only modestly and temporarily -- in 2013 and 2014, just as utilities are finalizing their retirement decisions," Book said.
