Energy Markets
Energy Markets
A Global Perspective
on Natural Gas
As combined cycle power plants climb new heights in efficiency
and climate concerns demand a drastic cut in CO2 emissions,
gas is destined to be a source of reliable power for the decades to
come. However, there are significant variations in energy
systems worldwide, each of which demands a different solution.
Text: Barbara Simpson
Illustrations: Tilman Faelker
14 Living Energy · No. 9 | December 2013
R
enewable energy technology is
maturing, and power demand is
still rising. Fossil fuels will not
disappear from the energy mix in the
next century – but their roles will
change. Natural gas will increase its
role as a key fuel, gaining in importance over coal, and grow its amount
of power of the global energy mix
by 2.4 percent per annum until 2018,
according to the International Energy
Agency’s Medium-Term Gas Market
Report of June 2013.
On the one hand, the advantage of
natural gas lies in the sophisticated
power plant technology that allows
flexible operation, achieves high efficiency in base-, average-, and peakload application, and is comparatively
quick to install (see also the interview
with Roland Fischer, CEO of the Power
Generation Division at Siemens
Energy, p. 30–33). Technical flexibility
is one way of backing up and balancing fluctuations in power generation
from renewable sources due to changing
weather conditions. This makes
gas an important factor in the energy
equation for countries such as Great
Britain and Germany, which have opted
for large-scale use of renewable energy
resources for their power systems.
Efficiency, in turn, is the decisive
success factor in South Korea and
the USA, where new cutting-edge
combined cycle power plants featuring H-class gas turbines from Siemens
have been commissioned this summer
with record-breaking efficiencies of
more than 60 percent. When it comes
to replacing aged coal power plants in
the USA, or repowering old gas-fired
power plants in Russia, or improving
efficiency – either to save on costly
liquefied natural gas imports, as in
Asia, or to be able to export more
natural gas, as in the Middle East and
Russia – combined cycle power plants
are the fossil-fuel technology of choice.
On the other hand, the regulatory situation in Europe poses a threat to the
success story of natural gas as a reliable,
CO2-efficient power generation solution. In Germany, energy from renewables is fed into the grid on a priority
basis, followed by the next lowest
marginal cost of electricity generation of conventional power plants.
Due to the high gas price, the lower
price for coal and the low CO2 price,
highly efficient combined cycle power
plants currently do not feed energy
into the grid. In addition, the EU still
has not achieved an integrated energy
market, resulting in an investment
freeze from European utilities.
Further movement on the market
might be expected from the shale gas
boom in the USA, which represents
over one-fifth of the global increase
in gas production. Siemens is also
working on emerging technologies
such as power-to-gas, which produces
hydrogen, and in an additional step
methane, from surplus wind energy
by a process of electrolysation.
The current situation on the gas market
provides ample material for a lively
debate. Living Energy portrays
standpoints from four energy executives representing four regions.
Barbara Simpson is a business and science
journalist based in Zurich.
Living Energy · No. 9 | December 2013
15
Cover Story
USA
A Gas Revolution
Affordability is the key to the US
energy market, but sustainability
is also high on the agenda for
James L. Robo, Chairman, President and Chief Executive Officer of
NextEra Energy, Inc., a Floridabased clean energy company.
James L. Robo
is Chairman,
President and
Chief Executive
Officer of
NextEra Energy.
The US electricity market, the largest
in the world, is in full transition from
coal dependency to shale gas abundance. The unprecedented high-pace
exploitation of nonconventional deposits is making local natural gas up to 50
percent cheaper than in Europe. “We
will be a net exporter of shale gas and
oil in 2025 – that is a game changer for
foreign policy as well as for energy policy in the States. It is probably as important as the Internet has been to the future economic growth of the United
States,” Robo said. Gas-fired power
plants are thus set to play a major role
in US power generation in the future.
But far from increasing dependency
on fossil energy resources, he claims
persistently low natural gas prices
will actually prove a catalyst for a
more diversified energy mix by freeing funds for investment in innovative, reliable technologies while keeping energy prices affordable for
customers. NextEra Energy is the largest renewable energy producer from
Photo: NextEra
World leader in consumption –
the USA
2.8
€/GJ
2013 cost of gas for
electricity production
the wind and sun in North America
and operates some of the world’s
most efficient combined cycle power
plants. For Robo, renewables and gas
go well together.
“We can be both green and clean –
and low-cost,” he declared in July 2013
at the Siemens Energy Round Table
Discussion with Michael Suess at NextEra Energy’s headquarters in Juno
Beach, Florida. “We’ve invested billions
of dollars modernizing our power generation fleet and at the same time, at
Florida Power & Light Company (FPL)
our typical residential customer bills
are the lowest in Florida and 26 percent
below the national average.”
way for the new facility. In July 2013,
NextEra Energy subsidiary FPL demolished the massive Port Everglades
oil-fired power plant to make way for
the “Next Generation Clean Energy
Center,” which is expected to be operational by mid-2016. A third modernization project is under way at FPL’s
2012 gas supply (million cubic meters, Mcbm)
Import
88.8
Production
Share of electricity production by gas
Gas
1,100 TWh
2012
SPP
81.8 MW
2012
46.5
Own
consumption
722.9
Gas
1,946 TWh
2030
Installed capacity: gas power plants
CCPP/SCPP
328.8 MW
680.8
Export
CCPP/SCPP
605.1 MW
SPP
16.9 MW
2030
One of the major development projects is FPL’s recently commissioned
power generation facility in Cape Canaveral, Florida, which features three
274-megawatt SGT6-8000H gas turbines as the main drivers. They replaced an inefficient oil-fired power
plant that was demolished to make
Riviera Beach facility, expected to be
completed by mid-2014. The combined cycle power plants will reduce
dependency on expensive imported
oil by generating cleaner electricity
with low-cost shale gas, explains Robo.
While demand for energy in the USA
slowed when the economic crisis began in 2007, it is now slowly rising
again. Natural gas-fired power plants
are dominating the capacity expansion. In fact, it is expected that gasfired power plants will unseat coal as
the most important source of US power
generation by 2022. President Barack
Obama has pledged that by 2020, his
country would reduce its greenhouse
gas emissions in the range of 17 percent below 2005 levels if all other major economies agreed to limit their
emissions as well (which is currently
not the case). The increased installation of renewables as well as the preference for gas over coal and oil may
help achieve that goal.
By Barbara Simpson, based on the Round Table
Discussion with James L. Robo
Source: IHS CERA, IEA statistics, Siemens’ own projections
Living Energy · No. 9 | December 2013
17
Cover Story
Arabian Gulf
Gas to Dominate Base-Load Power Generation
Although subsidized gas prices in
the Gulf have led to supply shortages,
in the long term, ACWA Power CEO
Paddy Padmanathan says natural
gas-fired plants will dominate baseload power generation in the region.
investments in downstream petrochemical production. While subsidies
have succeeded in promoting industrial development and economic diversification, the harm done to national
treasuries and the distortions it is
causing in areas such as the technology choices for power plants (dirtier
burning, less efficient liquid fuels, and
imported coal) is forcing a steady
rethink of the issue.
directly, says Padmanathan, noting
that policymakers and procurement
entities are structuring tenders to favor “the technical solution that delivers the lowest whole-life cost of power generated – including the cost of
fuel priced at market prices,” even if
2012 gas supply (million cubic meters, Mcbm)
Import
Share of electricity production by gas
Gas
748 TWh
Paddy Padmanathan is the CEO of Saudi
Arabia-based ACWA Power, a privately
held developer, investor, co-owner, and
operator of plants in the Middle East,
North Africa, and Southern Africa regions,
with an installed capacity of 15,731 megawatts of power and 2.37 million m3/day of
desalinated water.
Production
544.0
2012
2030
Photo: ACWA Power
Reliance on gas-to-power in the
Middle East
2.0
€/GJ
2013 cost of gas for
electricity production
CCPP/SCPP
CCPP/SCPP
305.1 MW
718.1 MW
SPP
84.1 MW
2012
Export
174.3
Gas
1,550 TWh
Installed capacity: gas power plants
In mid-2013, consulting firm Booz &
Company issued a report entitled “Gas
Shortage in the GCC [Gulf Cooperation
Council]: How to Bridge the Gap.” It’s
hard to imagine how the region got into such a situation, given that it’s
home to 22.8 percent of proven global
natural gas reserves. What’s more,
most experts believe that in the long
term, natural gas will come to dominate
the region’s power generation fuel mix.
This series of contradictions is explained most simply by the highly
subsidized price of natural gas across
the region – combined with massive,
ongoing increases in industrial and
residential power demand and huge
39.1
SPP
79.3 MW
2030
One example of this, says Paddy
Padmanathan, President & CEO of
Saudi Arabia-based ACWA Power, is
the growing investment in renewable
energy across the region to help meet
peak power demand. This is combined
with efforts to place natural gas at
the heart of base-load power generation, to be complemented in Saudi
Arabia and the United Arab Emirates
by nuclear power. The region also is
beginning to address subsidies more
Own
consumption
408.8
governments later reinject the
subsidy so that consumers still enjoy
a low retail price. These changes
“are and will continue to be driven by
[the need for] financial viability – the
need to reduce the subsidy bill,”
he says.
It’s a “sure thing that natural gas will
come to dominate” the regional fuel
mix, Padmanathan believes, given its
environmental benefits and reliable
supply and price over the long term.
He points to the region’s significant
natural and shale gas resources, and
the new natural gas discoveries in
nearby eastern and southern Africa.
By 2033, he sees gas comprising
50 percent of the fuel mix, renewable
energy 40 percent, and nuclear energy 10 percent. “Only a dramatic further
reduction in the cost of renewable
energy, combined with a dramatic increase in reliability, would change this
equation, and this is a very unlikely
scenario,” he concludes.
By Ward Pincus, compiled from an interview
with Paddy Padmanathan
Source:
IHS CERA, IEA statistics, Siemens’ own projections
Living Energy · No. 9 | December 2013
19
Cover Story
Russia
Energy Generation from Gas Will Remain Steady
Mikhail Lifshits is a Member of the
Board of Directors of Renova and
High-Tech Assets Business Development Director at Renova. He
explains the need to repower old
gas-fired power plants, but says
a rising Russian gas price over the
next years will result in a renaissance of nuclear and coal.
ever, over the last years the price has
risen. “In five to ten years, there will be
no difference. That’s why we need a
change,” says Lifshits. Russia has
huge resources of coal, and especially in coal regions, it will make much
more sense to use it for energy production rather than gas. However, due
to their flexibility, gas-fired power
plants will remain influential. “Most
of Russia’s transmission network was
built in the 1970s and is in a bad
shape today.” With inefficient longdistance transmission, electricity has
to be produced regionally. Lifshits is
panies is huge: In the Tatarstan region
alone, a modernization program forecasts fuel savings of 20 percent. At
Kirishi power plant close to Saint Petersburg, an old-fashioned gas-fired
steam turbine was turned into a
combined cycle power plant (CCPP),
thus raising its efficiency from
38 to 55 percent.
2012 gas supply (million cubic meters, Mcbm)
Export
195.7
Production
658.4
Share of electricity production by gas
Mikhail Lifshits is Director, High-Tech
Assets Business Development at Renova
Group, which owns IES Holding,
Russia’s largest private power supply
and gas-distributing company.
At around 70 percent, the share of gas
in Russian power generation is very
high. But it is part of the government’s
modernization strategy to reduce that
share – in favor of coal and nuclear energy. “However, gas will continue to
play a major role for energy production in the upcoming decades,” says
Mikhail Lifshits. “Its share will be reduced, but as power production is increasing, in total it won’t be less.”
The rise of gas as Russia’s major energy resource came in the second half
of the 20th century when the gas price
inside the country was substantially
lower than on the world market. How-
Photo: Renova Group
Export powerhouse Russia
2.5
€/GJ
2013 cost of gas for
electricity production
Gas
563 TWh
Gas
825 TWh
2012
2030
Installed capacity: gas power plants
CCPP/SCPP
28.5 MW
SPP
70.7 MW
2012
CCPP/SCPP
117.3 MW
SPP
32.4 MW
2030
convinced: “Flexible gas-fired power
plants are ideal for the regulation of
energy deficits.”
Another important development is the
modernization of gas-fired power
plants. The potential for power com-
Own
consumption
462.7
“Kirishi is certainly a lighthouse project
for the country,” says Lifshits. “And
there is no doubt about the efficiency of
CCPPs: They will set the balance of energy producers right.” Lifshits’ company Renova alone has ten power plants
in the European part of Russia that are
being repowered at the moment.
Energy producers have come to understand that it is cheaper to modernize
the old plants rather than gradually to
repair them. However, they were hesitant to invest because of politically
motivated limits on energy prices that
made it difficult to return their investments. As a reaction, the government
introduced a program in 2010 guaranteeing energy prices that would make
investments in new capacities cost-effective. “Now there are talks about a
second round of this program,” says
Lifshits, “and the energy sector is optimistic about it. Actually, regarding
the critical condition many power
plants are in today, there is no alternative.”
By Moritz Gathmann, based on an exclusive interview with Mikhail Lifshits
Source:
IHS CERA, IEA statistics, Siemens’ own projections
Living Energy · No. 9 | December 2013
21
Cover Story
South Korea
The Challenges in South Korea’s Energy Production
South Korea, the world’s 12th-largest
economy and 10th-largest energy
consumer, lacks natural energy resources. It relies on tanker shipments of liquefied natural gas (LNG)
and crude oil to meet its significant
energy demands. Currently, the
country’s available electricity output is 80,713 megawatts, with peak
loads reaching 76,000 megawatts,
making for just a 5.5 percent reserve margin. The government is
using various measures to curb
consumption.
One example is the Siemens H-Class
gas turbine found in the new Dangjin 3
combined cycle power plant in Korea’s
southern city of Dangjin. It has an efficiency rate of more than 60 percent,
making it Asia’s most efficient fossilfired power plant. In fact, only two other
power plants in the world have broken
the 60 percent efficiency barrier. Dangjin 3 has also reduced gas consumption
and CO2 emissions by approximately
one-third compared to average gas
plants, and has cut CO2 emissions by up
to 75 percent compared to coal-fired
plants.
sioned in 2008. This increased efficiency will save up to 20,000 cubic meters
of natural gas per year, or one LNG
tanker load every eight years, or three
tanker loads over the plant’s projected
25-year economic lifespan.
2012 gas supply (million cubic meters, Mcbm)
Import
48.8
Share of electricity production by gas
Production
Gas
123 TWh
Gas
209 TWh
Lee Wan-Kyoung, President and CEO of
GS EPS, Ltd. talks of the challenges in
Korea’s energy production.
Lee Wan-Kyoung, President and CEO of
Seoul’s GS EPS, explains: “At the moment, Korea’s biggest challenge is to
even out the imbalance between power
consumption and demand.” However,
according to Lee, any new electricity
generation in Korea must be efficient
and environmentally responsible. “We
place special emphasis on maximized
efficiency and environmental friendliness. For that reason, we opted for a solution provided by Siemens, which features cutting-edge power plant
technology.”
Photo: GS EPS
Imported fuel for South Korea’s
economy
11.0
€/GJ
2013 cost of gas for
electricity production
2012
2030
Installed capacity: gas power plants
CCPP/SCPP
24.4 MW
SPP
3.4 MW
2012
CCPP/SCPP
49.2 MW
SPP
1.4 MW
2030
Dangjin 3 also consumes less gas overall. Annually, it will save more than
3 percent of the natural gas fuel required per kilowatt-hour generated,
compared with the Dangjin 2 plant,
also built by Siemens and commis-
Own
consumption
49.2
0.4
One outstanding feature is the high
operational flexibility of the plant.
Although currently running on base
load, the plant is expected to shift to
an increased cycling operation regime later in its lifetime. Fast startup times of less than 30 minutes for a
hot start ensure a high overall startstop cycle efficiency, thus saving fuel
during the start-up process. Quick
loading, unloading, and high part-load
efficiency and emissions will allow
GS EPS to run the plant profitably also under a more flexible operating
regime.
As South Korea’s continued economic
growth taxes the existing installed
capacity of its power grid, the country
will continue to seek innovative solutions and future power plant builds are
expected as the installed capacity in
the country is expected to grow by over
4 gigawatts each year.
By Walter Foreman, compiled from an interview
with Lee Wan-Kyoung
Source:
IHS CERA, IEA statistics, Siemens’ own projections
Living Energy · No. 9 | December 2013
23