Natural gas producers have plenty to cheer about as coal-generated power units are heading for retirement. Recently, two power companies announced plans to retire small, old coal plants, and, in the next five to 10 years, there are about 63 gigaWatts (GW) of coal-fired units that are more than 30 years old slated for retirement, said Michael Bolte, senior analyst with Wells Fargo Securities.

The key result of retiring this capacity will drive 3- to 5 billion cubic feet a day of incremental gas demand, Bolte reported based on his research and that of fellow Wells Fargo Securities senior analysts Neil Kalton, David Tameron and Michael Hall, and associate analysts Sarah Akers, Gordon Douthat and Jonathan Reeder.

Exelon Power and Progress Energy Inc. plan to retire more than 2,200 megaWatts (MW) of coal-fired capacity during the next two to eight years. Meanwhile, Duke Energy Corp. Chief Executive Jim Rogers said that, during the next five to 10 years, nearly every coal unit not retrofitted with sulfur oxide and nitrogen oxide controls will be retired, Bolte added.

“We estimate there are nearly 63 GW of coal units that are prime candidates for retirement over the next decade based on age, size (less than 300 MW of generating capacity) and environmental considerations. Most of this capacity is located in the PJM, MISO and Southeastern U.S. power markets,” Bolte said.

PJM is a regional transmission organization that coordinates the movement of wholesale electricity in all or parts of 13 states and the District of Columbia. MISO is the Midwest Independent Transmission System Operator.

Retiring 63 GW of coal-fired capacity and replacing it with generation from combined-cycle gas plants could also reduce annual carbon dioxide emissions by about 99- to 165 million metric tons or about 4.5% to 7.5% below the estimated 2009 level, Bolte added.

“The potential loss of power-sector gas demand from coal-to-gas displacement as gas prices move above [U.S.]$5 per million Btu could act as a limiting factor on the strength and size of a rebound in natural gas prices – and thus power prices. However, in the longer term, we think a significant amount of coal-plant retirements could benefit both natural gas and power prices. The resulting incremental power-sector gas demand should have a positive impact on gas prices, but higher gas prices and reduced reserve margins should benefit power prices.” – Bill Brocato, from Hart’s Oil and Gas Investor