Cheap Gas Fuels More Plant Conversions

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Written by Martin Lynch, European News Editor for Industrial Info (Galway, Ireland) - There is a growing trend among power, industrial and manufacturing plants towards converting from coal and fuel-oil to cleaner and more efficient energy sources, such natural gas and biomass sources.

This is particularly notable in the U.S. where the shale gas boom has led to abundant supplies of cheaper natural gas becoming the new fuel of choice at many of the nation's coal-fired power plants. Industrial Info estimates that such projects are worth more than $800 million in planned total investment value in North America alone -- a trend which it expects to keep growing. For additional information, see March 13, 2013, article - U.S. Combustion Turbine Conversions Could See Watershed Year in 2013.

According to the U.S. Energy Information Administration (Washington D.C.),the use of coal to generate electricity was down almost 18% for the first seven months of 2012, while natural gas use was up 30%. Looking further ahead, the International Energy Agency (IEA) has forecasted that natural gas could replace oil as the largest single fuel in the U.S. energy mix by 2030.

Converting and/or replacing coal-fired plants to burn natural gas is becoming big business and there are number of solid reasons to do so. First off, there's the cost benefit to running a plant on cheaper natural gas. U.S. natural gas prices have fallen by almost 67% over five years according to the IEA. With shale gas reserves estimated to remain plentiful in the long term, there's no reason to believe that prices will spike anytime soon. An abundant supply of domestic gas also protects prices from global price swings due to supply issues, competition and political unrest. This gives owners of power plants and industrial plants the stability they require to make the investments needed to switch from fuel-oil or coal.

The other key reason to switch is that by burning natural gas plants become more efficient and emit less CO2 and other noxious gases, including sulphur oxides, particulate and mercury, to name but a few. As emissions regulations tighten, it makes sense to make the conversion. This is especially true in Europe where there are strict emissions targets and restrictions in place across all member states.

The Large Combustion Plant Directive (LCPD) is a European Union (E.U.) directive which requires member states limit emissions from combustion plants with a thermal capacity of 50-megawatts (MW) or greater. It applies to fossil-fuel power stations, as well as to other large thermal plants, such as metal works, chemical plants and petroleum refineries among others. Any combustion plant built after 1987 must comply with specific emissions limits. From 2007, plants built earlier than that can chose to comply with the emissions limits, or 'opt out'. Those opting out are limited to a maximum of 20,000 hours of further operation, and must close completely by the end of 2015. Many of the U.K.'s older coal power plants such as Kingsnorth, Cockenzie and Ferrybridge are set for closure soon under the LCPD while others are in the process of converting some of their capacity to burning natural gas or biomass.

It is not just power plants that are making the switch. In recent times, Alcoa Incorporated (NYSE:AA) (Pittsburgh, Pennsylvania) has improved the energy efficiency and environmental performance of its San Ciprian (Spain) alumina refinery by switching from fuel oil to natural gas. The company estimates that in this first phase, using natural gas instead of fuel oil will result in an estimated annual 20,000 ton reduction of CO2 emissions.

The first LNG storage tanks are now in place. LNG storage will supply about 8% of total consumption at the refinery which currently consumes 300,000 tons of fuel oil per year. The Marina LNG pipeline that will bring gas to the plant is expected to go into operation this year.

Global aluminium major Rusal (ENX:RUSAL) (Moscow, Russia) is n the process of modernising its Aughinish alumina refinery in Ireland. The next phase will see the plant swap heavy oil to gas as its main energy source. The company said that the change of oil-fired boilers to gas-powered steam generators will reduce carbon emissions by 5%, particulate pollutants by 33%, nitrogen oxide by 38% and eliminate all sulphur oxide emissions. The conversion will cost approximately €15 million ($19.4 million) but Rusal claimed the project will pay for itself in less than a year. Aughinish is Europe's largest alumina producer -- in 2012 the refinery saw an increase in its annual production capacity up to 1.99 million tons.

Although the switch from coal to natural gas is thriving in the US, the price of gas in Europe has been on the rise which has put many energy companies off conversions. Gas-fired plants though are already very popular in Europe, thanks to their lower emissions and higher efficiency ratings.

The rising price of gas has been exacerbated in the past year by the availability of cheap coal imports from the US, where cheap shale gas is becoming dominant. In the past year, European power plant owners have found it cheaper to fire up their coal-fired plants in favour of their gas-fired fleets. This has led to gas taking a backseat to coal in the electricity mix of major economies like the U.K. and Germany for the first time in more than decade.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.