Message-ID: <2976702.1075854449632.JavaMail.evans@thyme> Date: Mon, 10 Jul 2000 16:31:00 -0700 (PDT) From: david.delainey@enron.com To: daniel.reck@enron.com, george.mcclellan@enron.com, kevin.mcgowan@enron.com Subject: Dow Jones Gas vs. Coal feature Cc: christopher.calger@enron.com, janet.dietrich@enron.com, david.parquet@enron.com, ben.jacoby@enron.com Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit Bcc: christopher.calger@enron.com, janet.dietrich@enron.com, david.parquet@enron.com, ben.jacoby@enron.com X-From: David W Delainey X-To: Daniel Reck, George McClellan, Kevin McGowan X-cc: Christopher F Calger, Janet R Dietrich, David Parquet, Ben Jacoby X-bcc: X-Folder: \David_Delainey_Dec2000\Notes Folders\Discussion threads X-Origin: Delainey-D X-FileName: ddelain.nsf Guys, this is the real deal - we need to be ahead of this!!! How are we making out on acquiring brownfield sites and formulating a strategy? Regards Delainey ---------------------- Forwarded by David W Delainey/HOU/ECT on 07/10/2000 11:25 PM --------------------------- Daniel Reck 07/10/2000 06:03 PM To: David W Delainey/HOU/ECT@ECT cc: Subject: Dow Jones Gas vs. Coal feature FYI =DJ Pricey Natural Gas May Alter New US Power Plant Options HOUSTON (Dow Jones)--High natural gas prices could slow the stampede to build as much as 140,000 megawatts of new electric generation across the U.S. and give new coal technology the boost it needs to compete economically with gas in the future. While market observers say the recent level of the price of natural gas - above $4.00 per million British thermal unit since late May - may not be sustainable, many expect gas to remain above $3.00/MMBtu for the foreseeable future. The jump in gas prices is blamed on a number of factors, from increased demand to fuel new power plants to stagnant U.S. gas production and a lack of available gas reserves in storage. Pricier gas could create a variety of effects on future electric generation: from damping interest in building some new gas-fired plants to improving economic prospects for investment to upgrade or build new coal-fired plants. Current gas prices are off the chart when compared to existing forecasts from the Energy Information Institute, part of the U.S. Department of Energy. EIA projects the average U.S. wellhead price of gas will only rise to $2.81/MMBtu by 2020, up from an average of $1.96/MMBtu in 1998, a jump of 43%. EIA predicts coal prices will fall by 28% during the same period. Continued high natural gas prices may mean some proposed combined-cycle gas plants are never built, predicts a Midwest utility coal buyer. "It's awfully hard for a combined-cycle gas plant to compete with coal. No way they can do it at these prices." However, a recent report from Raymond James and Associates Inc., concluded that gas-fired generation will still be economical this summer even if gas prices climb above $7.00/MMBtu because of high power prices in most regional US wholesale markets. Future Gas Supply Questioned; Coal Won't 'Go Away' "The gas turbine generation trend is not over, not by a long shot," said the Raymond James report. "Gas turbines use gas more efficiently than the nation's fleet of older, conventional boiler-driven generators that are fired by gas. The efficiency gains enabled by gas turbine generation will be more valuable as gas prices rise." While gas-fired plants are much cheaper and quicker to build than traditional coal-fired plants, many industry observers doubt that U.S. gas supply can grow to meet future demand, expected to reach 30 trillion cubic feet or more per year by 2020. "Coal will not go away," said Steve Bergstrom, president of Dynegy Inc. (DYN). "The coal industry will figure it out. There are too many jobs involved and it's too cheap." Bergstrom expects the rapidly expanding appetite for electricity across the U.S., which is growing 3% per year, will require additional generation from many fuel sources. "You'll see gas will be used in most of the additional generation for the next four to five years," he predicted. "In the latter half of the decade, you'll see other alternatives, like coal, come into play. Technology will create changes." Even some independent power producers who are rushing to build gas-fired power plants in the U.S. admit the recent price of gas, if prolonged, is a threat. Bob Kelly, Calpine Corp.'s (CPN) senior vice president, said his firm's fleet of 40,000 MW of highly efficient natural gas plants to be in place by 2004 will be profitable even with gas at $4.00/MMBtu, but he expects owners of coal-fired plants to make additional capital investment to keep those plants running as well. "If gas stays $4.00 forever, you'll see more coal plants. It will make sense to put scrubbers on," said Kelly. Southern Co. Evaluating Coal-to-Gas Technology Gas has to compete on price with other available fuel, agreed Bob Carter, chairman of Panda Energy International. Carter told Dow Jones Newswires late last month that the idea of new coal-fired generation is "very possible." In fact, the jump in gas prices has given a boost to Southern Co.'s (SO) effort to build a first-of-its-kind coal plant that seeks to be cost and environmentally competitive with natural gas, said Charles H. Goodman, Southern Co.'s vice president for research and environmental affairs. Southern, with major DOE funding, recently announced a major advance in its effort to utilize coal in a more efficient and less polluting fashion to generate electricity. The new process combines use of a "transport reactor," a device based on existing technology used to "crack" crude oil into lighter products, to turn coal into a gas which is then burned in a combustion turbine much like natural gas. In its gaseous form, coal can be cleaned of many of its pollutant-forming impurities such as sulfur dioxide, nitrogen oxides and particulate matter, Goodman said. The key to the technology is the ability to burn the coal gas in a highly efficient gas turbine rather than burning it to make steam to turn a turbine, he added. The new technology can produce 100 megawatts of power with two-thirds less coal than a traditional boiler-type coal generator, said Goodman. And higher natural gas prices could move this technology closer to a reality. "The urgency of getting on with this (coal technology) is the forecast for gas prices," said Goodman. "At $2.50/MMBtu, it's a bigger stretch for this coal plant (to compete with gas) than at $3.00 or $3.50/MMBtu." New Coal Technology May Also Address Emissions Goodman said Southern hopes to make a decision in the second half of 2001 on whether to build a commercial power plant with the coal gasification technology now being tested at Southern's Power Systems Development Facility in Wilsonville, Ala. If gas prices stay high or remain volatile, Goodman said that will influence the timing, size and other variables associated with building the first full-size plant to burn coal gas in this manner. "The $64 question is the price of gas," said Goodman. If gas is cheap and plentiful, utilities will have a harder time investing in coal technology, he said. But because the U.S. has abundant coal resources, Goodman predicts the coal-to-gas technology could eventually be used not only for new plants but to repower existing coal plants in a way that addresses air quality concern. Other partners in the Power Systems Development Facility include the Electric Power Research Institute, Foster Wheeler Corp. (FWC), Halliburton's Kellogg Brown & Root (HAL), Peabody Group, Combustion Power Corp. and Siemens-Westinghouse Power. -By Eileen O'Grady, Dow Jones Newswires; 713-547-9213; eileen.ogrady@dowjones.com (END) DOW JONES NEWS 07-10-00 04:22 PM - - 04 22 PM EDT 07-10-00 :TICKER: CPN DYN FWC HAL SO :SUBJECT: CNHV EUTL OILO OILE CA GA NJ TX COMM INDG Copyright (c) 2000 Dow Jones and Company, Inc. Received by NewsEDGE/LAN: 7/10/00 3:27 PM