Utilities May Build U.S. Gas-Fired Plants, Duke Says

Utilities may defer coal-power projects in the U.S. and build gas-fired plants should prices of the fuel remain stable, said the chief executive of Duke Energy Corp., the third-largest operator of U.S. coal-fired generators.

Assuming gas prices stay “at the $4 to $7 range and gas producers are prepared to enter into long-term contracts, you will see more and more utilities in the U.S. build gas plants,” James Rogers said in an interview in the Chinese city of Tianjin today. Natural gas in New York was at $3.867 per million British thermal units in electronic trading at 6 p.m. Singapore time.

Gas prices have fallen 21 percent since the end of July as domestic supplies expand. Utilities may prefer gas to coal and nuclear energy as output of gas from shale increases, according to IHS Cambridge Energy Research Associates.

Shale gas may account for 50 percent of total U.S. gas supply by 2035 compared with 20 percent now, IHS said. The fuel is produced by hydraulic fracturing in which millions of gallons of chemically treated water are forced into wells to break up shale, a type of sedimentary rock, allowing gas to flow.

The Obama administration proposed in July cutting air pollution from power plants owned by companies including Duke in 31 states from Massachusetts to Texas. Duke owns utilities in the U.S. Southeast and Midwest.

“Gas-fired power plants will be built in lieu of coal plants because of uncertainty in the regulation of coal, on sulfur oxides and nitrogen oxides, as well as carbon,” Rogers said.

Environmental Concerns

Obstacles to shale-gas development include environmental concerns, which have risen after the Environmental Protection Agency started investigating cases of drinking-water contamination from methane discharged while drilling for the fuel. New York has banned new drilling in the Marcellus Shale pending studies into potential impact on water supplies.

“There are still environmental issues to resolve,” Rogers said, referring to shale-gas output.

The U.S. power business needs to “consolidate more” so that companies can secure greater access to capital at lower costs to build smart grids and renewable energy plants, Rogers said. Wind and solar will play a smaller role in U.S. electricity generation compared with nuclear, he said.

Shale-gas reserves have been discovered in the U.S. during the past five years, boosting overall gas resources, according to Chesapeake Energy Corp., the country’s second-largest gas producer. Gas reserves in the U.S. are now estimated to exceed 2 quadrillion cubic feet, more than doubling the country’s previous estimates, the company said on its website.

The U.S., holder of the world’s largest reserves of coal, relies on the fuel for about half of its power generation, compared with about 23 percent for gas, according to the Energy Department.

--Chua Baizhen in Tianjin and Dinakar Sethuraman in Singapore. Editors: Ryan Woo, Clyde Russell.

To contact the Bloomberg News staff on this story: Baizhen Chua in Tianjin at bchua14@bloomberg.net; Dinakar Sethuraman in Singapore at dinakar@bloomberg.net.

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