It indicates while natural gas is widely viewed as the logical replacement for coal in the Australian power sector, its future is far from secure.
Does this translate across the US energy frame? Sadly, probably not, but more on that later.
The Standard & Poors-Reputex paper forecasts the impact of the Australian carbon price mechanism on the shape of Australia’s national electricity market through to 2020.
It examines the question of which fuel sources are likely to benefit most in the move away from coal generation.
In the report, Reputex models three gas and carbon price scenarios to show the likely effect on the fuel mix of Australia’s NEM.
The first scenario, under a static gas price and high carbon price, is the only one to predict a surge in gas generation, showing it rising rapidly from today’s 11% to about 31% by 2020.
The other two, which both forecast higher gas pricing, paint a more mixed picture.
Scenario two shows black coal continuing its dominance, while a drop in brown coal generation is covered by gas.
Scenario three shows gas generation growing but at a slower rate.
Reputex executive director Hugh Grossman said the future of gas generation in Australia would largely be determined by the outcomes from both the gas and carbon prices beyond 2015.
“While gas seems to be the logical replacement, the winner under carbon pricing may not be so clear cut,” he said.
“We anticipate gas generation will increase from 11 per cent of our total fuel mix, however, the extent of that win could be muted by the growth of export markets from 2014 and the expected increase in gas price levels.
“Any upturn in gas prices would see the operating costs of gas generators spike with it, making them less competitive relative to coal.
“Any gas price rise may therefore offset the effects of the carbon price, which would otherwise be favourable to the sector.”
One thing the study’s scenarios do not take into account is the possibility of a game-changing event on the scale of the US shale gas industry, which has led to extremely low gas prices – the Henry Hub price on Friday was $US1.87 per million British thermal units.
Should something of that ilk happen in Australia, the generation equation could change considerably.
The US also has looming environmental laws that will make it much harder for coal generation facilities to be built.
The US Energy Information Administration’s March short-term energy outlook predicts power sector demand for natural gas will grow by almost 9% this year to a record high of 22.7 billion cubic feet per day.
This will grow the share of US power generated by gas-fired plants from 24.8% in 2011 to 27.1% in 2012.
Coal will be the biggest loser. The share of electricity generation from coal is projected to drop from 42.4% to 40.4%.
The power sector consumes about 92% of US coal production.
The EIA expects coal demand will fall 5% to about 884 million short tons in 2012. That is the lowest level of coal use in US energy generation since 1995.
It is expected coal use will increase slightly in 2013 but remain below 2011 levels.