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NERC highlights risks of increased gas dependence

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World Coal,

The North American Electricity Reliability Corp. (NERC) has highlighted the risk that growing dependence on gas could pose to US power supplies in its latest Summer Reliability Assessment 2014. Since 2011, 22 GW of coal-fired power plants have been retired – just under half of total baseload retirements – while gas-fired power has boomed on the back of abundant shale gas supply.

A need for greater coordination between gas and electricity markets

“Growing reliance on gas-fired resources [highlights] the need increased coordination between the gas and electricity industries,” NERC said in the report in order to ensure sufficient supplies of gas are available for power plants. The coordination is particularly important in winter to address constraints resulting from cold weather, including the simultaneous demand for gas for residential heating and electric generators, as well as production issues such as freezing wellheads.

But the summer also presents potential problems, said NERC: “Specifically, the electricity industry must be away of pipeline maintenance schedules and promote ongoing coordination to ensure individual generators do not face supply shortages during peak conditions”.

NERC highlights a number of regions where gas dependency has risen over the past five years, including New York and New England where gas-fired generation accounts for over 50% of electricity supply.

Low coal inventories also cause concern…

NERC also noted that coal stockpile levels were at there lowest since 2006, following the extreme cold of the 2013 – 2014 winter. This led to supply disruption as production at some mines was halted and rail shipments to coal-fired power plants were limited. At the same time, coal burn rose as the cold temperatures drove electricity usage up.

Coal inventories have also been affected by the increased use of railways to transport oil, as well as a record grain harvest – both of which have displaced coal shipments on the rail network.

“With stockpiles significantly depleted during winter as a result of railroad performance issues and the railway networks likely inability to increase the rate of deliveries much beyond 2013 levels, there is a high probability coal producing units relying on western coal will not be able to increase their output despite higher demand,” said Wood Mackenzie in a recent report.

… while coal mine closures also limit potential to boost supply

There have also been concerns raised as to whether US coal mines could cope with increased demand over the summer months. According to Wood Mackenzie, demand will peak at 50 million short t in July and August: "Yet, even if the railroads were able to keep up, it is not expected that the mines themselves could sustain or even attain, a 50 million short tpm rate of production given recent cuts in operations," said Matt Preston, principal analyst, North America thermal coal markets for Wood Mackenzie.

As a result, some utilities that are heavily dependent on coal have expressed concerns in meeting summer peak demand, concluded NERC. 

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