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Power Industry Grapples with Natural Gas Markets

This article is more than 10 years old.

On Friday, a small group of influential industry leaders and policy analysts gathered in Baltimore, MD to discuss the increasingly complex and poorly coordinated interface between electric and gas markets.

The meeting marked the first major step for the North American Energy Standards Board's "Gas-Electric Harmonization Committee," which was established earlier this year to develop recommendations for harmonizing of the gas and electric markets.

Susan Tierney, a managing principal of the Analysis Group and among the most influential electric and gas policy thinkers in the United States, and Valerie Crockett, a manager at the Tennessee Valley Authority, were appointed co-chairs of the NAESB Committee. A veritable who's who of the gas and power companies and regulators – ranging from Exxon-Mobil and the Southern Company to the California Public Utility Commission and the Federal Energy Regulatory Commission.

The Committee held its first big in-person powwow last week in Baltimore, will not develop standards or make policy decisions, but the recommendations it develops will likely shape future policy choices and standards development.

The NAESB effort is one of many efforts underway to manage the interactions between electric power and natural gas markets more effectively over the past few years. And for good reason.

In 2010, the Aspen Environmental Group estimated that replacing all coal-fired generation in the U.S. with natural gas power plants would effectively double the demand for gas for generating electricity.

Over the past decade, the use of natural gas to generate electricity has expanded significantly as a result of market deregulation and the growth of merchant combined-cycle natural gas power plants, which are easy to site, finance and build compared to coal and nuclear power plants. Electric power demand for natural gas climbed from 5.3 trillion cubic feet (Tcf) in 2000 to 6.8 Tcf in 2009 – the U.S. consumed a total of about 23 Tcf of natural gas in 2009. To put this in perspective, a box large enough for a basketball can hold roughly 1 cubic foot of natural gas. The average home uses 66,000 cubic feet of natural gas annually.

In addition to NAESB, the U.S. Department of Energy's Electricity Advisory Committee, the North American Electric Reliability Corporation and the American Public Power Association have also sponsored serious investigations of the interface and interdependence of the electricity power grid and natural gas infrastructure.