Historically low natural gas prices resulting from the shale gas boom are having disruptive effects on the fuel mix for power generation.  While the expansion in natural gas combined cycle power generating stations can be attributed to several causes, it is evident that historically low natural gas prices are supporting and extending the trend.

Since the 1990s, natural gas power plants have been largely responsible for the increase in US peak load capacity.  The mandated addition of (inherently unreliable) renewable energy sources has also driven a shift towards new capacity, fired by natural gas power plants which are less expensive and take less time to build.  These power plants also add gas-fired electrical capacity with the fewest regulatory risks, due to the lower emissions produced when burning natural gas compared to coal.

The chart below from US Energy Information Administration illustrates the steady growth in gas deliveries to power generating customers from 1998 to present:

Additionally, this chart depicts the more recent surge in utilization of gas-fired power generating station capacity.

Power producers are now making a significant change in their fuel mix planning based on two key factors: 1. Approximately 30% of the nation’s coal-fired power plants face decommissioning in the next decade due to obsolescence 2. Cheap, domestic shale gas is now found in abundance.

As stated in the Wall Street Journal on April 11, 2012 (subscription required) natural gas prices are currently competitive with the cheapest coal from Wyoming and Montana.  While natural gas prices will not stay low forever, neither will the price of coal.

Natural gas combined-cycle power generating projects, like pipeline infrastructure, will require substantial capital outlays for many years ahead.  Companies throughout the construction value chain stand to benefit from exposure to NG power generating station and pipeline infrastructure.