IHS CERAWeek 2013 – A summary of day four

The growing role of natural gas in the US power mix was a strong theme on Thursday at IHS CERAWeek. Energy policy and the significant impact of inexpensive natural gas on other forms of generation, especially renewables and coal, were important lines of discussion.

Daniel Poneman, US Deputy Secretary of Energy, gave the Thursday morning Keynote Address with a perspective on the United States' approach to energy policy, stating that the United States is using an "all-of-the-above" strategy for developing energy resources. He emphasized the important and growing role of US fossil fuel production and described the shale gas revolution as the most innovative development of the new millennium. However, an emphasis on environmental stewardship is necessary to ensure that this opportunity is fully developed, he added.

Gérard Mestrallet, Chairman and CEO of GDF SUEZ, commented on the shifting energy policy priorities in Europe and the United States. He considered the two regions as divergent "laboratories" for energy policy. In Europe, Mr. Mestrallet suggested, policymakers have prioritized greenhouse gas reductions above all other goals, including security of supply and industrial competitiveness. He said that the results of this policy include flat or declining demand, oversupplied power markets, and reduced international competitiveness for European firms. As a result of the shale gas revolution, Mr. Mestrallet sees much greater opportunities for new gas and power facilities in the North American market. He noted the irony that despite European climate policy, Europe's greenhouse gas emissions are now rising, In contrast the development and utilization of cheap natural gas in the United States has contributed to a substantial decrease in US carbon emissions since the middle of the previous decade.

As members of a panel on Power CEOs, Anthony Earley, Chairman, CEO, and President of PG&E Corporation; James Rogers, President and CEO of Duke Energy; and John Russell, President and CEO of CMS Energy Corporation and Consumers Energy Company, debated the current state of the US power sector. They all anticipate relatively flat power demand growth and discussed how to keep power prices down in that environment. Mr. Earley noted that "safe, reliable, and affordable natural gas" is an essential tool to keeping electricity affordable. Maintaining diversity in the power fleet, another theme, is a particular challenge, as Mr. Earley noted, in the current low-cost natural gas environment. Mr. Rogers added that the single greatest threat the power sector faces is pressure from regulators to build gas and only gas right now. He emphasized that natural gas price volatility is certain.

Another group of power sector executives-Arno Harris, CEO & Chairman, Recurrent Energy, Board Chair, SEIA, Board Member, Advanced Energy Economy (AEE); Tristan Grimbert, President and CEO EDF Renewable Energy; Mathias Becker, President and CEO of Renova Energia SA; and Denis Cochet, Senior Vice President Sales & Marketing, Alstom-examined the impact of the recent shale gas boom on the competitiveness of renewables. Mr. Harris acknowledged the spread between the price of renewables and gas, but said that most companies have learned to value fuel diversification. Mr. Grimbert pointed out that in 2008-09 wind was more competitive than gas. However, despite the 30% reduction in wind prices since, wind today is less competitive than gas in many regions of the United States.

In a panel on the future of coal, Deck Slone, Senior Vice President, Strategy & Public Affairs, Arch Coal, said that natural gas prices and environmental regulations are greatly influencing coal's US market share. A large portion of power generation, the main driver of thermal coal demand, switched from coal to natural gas last year, but he expects this shift to be short-lived, with coal taking back market share in 2013.

Posted 8 March 2013

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.