European Gas to Power (II) - squeezing margins
Gas producers across Europe and beyond are today presented with unprecedented growth opportunities. Major supply projects including the operational North stream and proposed South stream, Nabucco and Transanatolian pipelines are evidence of the expected need for gas in the coming decades. Liquefied Natural Gas continues to grow and increasingly exert its position as the key swing gas source across the Atlantic and Pacific basins. And, though it is not yet fully accepted as a primary source of energy in Europe, shale gas exploration in the US is affecting the global gas market and the drilling process may yet in the coming years find a better and safer way to gain public buy-in. A recent report by IEA suggests that gas could replace coal as the second largest primary energy source (after oil) and world demand for gas could rise by 50% within 25 years. Similarly Exxon Mobile predicts that in Germany gas consumption will rise to 34% of the energy mix by 2040 (from 20% today). But as one of the gas industry's key customers, the gas to power sector is not just keenly aware that gas demand growth means upward pressure on gas prices.
As described in our last blog, the sector is facing pressure from renewables too and is faced with a bleak picture on declining margins in operating their plant assets. Relying on revenues over marginal running periods requires a seismic shift in thinking for generators, and investments in forecasting technology and market modelling tools with fast response are crucial (see also High Performance Computing). So too though is investment in engineering innovation and some of the current research projects being funded by European governments make interesting reading. BMWi's "FleGs" research project is developing a CCGT plant scheme whereby instead of being forced to consume heat and power at the same time, heat is instead stored in an integrated high-temperature thermal storage system. This means that at night-time, when baseload and wind generation is often sufficient to meet electricity demand but district heating is still required for customers, the costs of idling the gas turbine can at least be avoided. Similarly, new turbine advances such as the 50 MW/minute ramp rate of GE's FlexEfficiency turbine may also provide much needed faster load response and thereby allow CCGT plant to better react to intra-day price signals. Increasingly money will be made and lost in these critical ramping periods and in offering backup services to TSOs for ramping capability - whoever can adapt quickly and remain agile across engineering and IT technologies is likely to hold the competitive advantage.