Natural Gas: Game Changer
Our nation has abundant resources of natural gas, which has certain environmental and price advantages over coal and is capturing an increasing share of the domestic electric generation market. Natural gas creates significantly lower amounts of carbon dioxide and other emissions when burned than does coal. And natural gas prices are expected to remain comparatively low. New gas plants or existing coal units modified to burn natural gas will likely replace a portion of the energy lost as coal units are retired.
We have been ramping up our own use of natural gas largely due to the efficiency of our combined cycle gas units and its affordability as part of a balanced portfolio. We have been operating four combined-cycle gas plants: the 840-MW Waterford and 580-MW Dresden plants in Ohio; the 1,200-MW Lawrenceburg Plant in Indiana; and the 543-MW J. Lamar Stall Unit in Louisiana.
We have increased our use of natural gas by about 130 percent since 2009. A mild winter (in 2011-2012) and high levels of natural gas production from shale gas formations that led to higher natural gas inventories and downward pressure on gas prices made power generated by these units more economical.
Technology advancements in the oil and natural gas industries, through the use of horizontal drilling and hydraulic fracturing, or fracking, are driving significant economic growth and potential for future growth in Arkansas, Oklahoma, Ohio, Louisiana, Texas and West Virginia. And our companies and customers are benefiting from these advancements. Extraction of gas from shale formations is altering the fuel mix throughout the industry by making gas more competitive with other fuel sources. Shale gas is in abundant supply in much of our footprint, and extraction with these technologies is producing economic and customer growth opportunities for much of AEP’s service territory.
The 580-MW Dresden Plant in Ohio is one of AEP's four combined-cycle gas plants.
In Texas, drilling on the Eagle Ford shale formation has created higher demand for, and the need for quick access to, electrical power to operate drilling rigs and processing facilities. Shale gas extraction is supporting local jobs, economic growth and electricity demand growth for our companies. This increase in demand in Texas and elsewhere requires us to engage in a system-wide review of capital investment priorities. Our Economic & Business Development team is on the ground working with the oil and gas industries and in 2012 expanded to the Internet, giving oil and gas companies in Texas and elsewhere, a one-stop shop location for the services they need. At the same time, AEP Texas established a special website specifically for the oil and gas industry to assist with their development needs in that state.
We are closely monitoring the risks associated with increased reliance on shale gas, such as concerns related to the possible impacts of fracking on ground water. Production from fracking could be far more limited if it becomes subject to more environmental regulations. As supply decreases or slows, either from regulations or market forces, prices will rise. Reported seismic activity from disposal of fracking fluids poses additional potential for risks. Ohio’s Department of Natural Resources has said it believes that the high-pressure injection of gas drilling wastewater into the ground was responsible for a series of earthquakes in the state and recently imposed new regulations as a result.
We support development of shale gas resources as long as it is done in an environmentally responsible manner. Without a doubt, shale gas is changing the industry. It is contributing to low natural gas prices, but because no one can guarantee low natural gas prices for the foreseeable future, and there are many external factors that could cause the same price swings we have seen with natural gas in the past, it is not in the best interest of our nation to become overly dependent on it or any single fuel for our electricity generation.