According to analysts The McIlvane Company the lower prices for oil currently being experienced will ultimately translate into lower gas prices which will, in turn, encourage retirement of coal-fired power plants and replacement with gas turbine generators. Lower gas prices also have a negative impact on sales of wind turbines and solar power plants. These trends are continually tracked in several McIlvaine services.
Europe and the USA have a number of coal-fired power plants which are candidates for retirement. One option taken up in Europe is to replace the old coal-fired power plants with new ones. The USA has effectively eliminated this option and is faced with upgrading 50 year old power plants or retiring them.
Gas prices in the USA are projected to be around $4/MMBtu in 2015. This price is already the basis of the present plans for most generating companies. However, if the price fell to $2/MMBtu with any assurance that the level would remain this low for a decade, then there would be a large number of coal-fired power plant replacements.
There are several factors that impact gas prices. Despite record high production levels, US gas inventories are still 0.24 TCF (trillion cubic feet), or 6%, lower than last year's inventory levels and 0.26 TCF, or 7% lower than the five-year average (2009-13). If this winter is anything like the previous one, prices might spike. But the EIA projects lower residential and commercial demand based on milder temperature forecasts and higher forecasted natural gas prices.
The price of oil has a powerful effect on gas prices because one can be substituted for the other. However, there are some exceptions. The US cannot easily export gas and so the price in the US is not reflective of world oil or gas prices.
Another aspect is the relative value of the dollar against the yen, euro and other currencies. Oil prices are tracked in US dollars. When the dollar rises against other international currencies then oil prices fall, because buyers can move into euros and buy their oil more cheaply.
In general, the low gas prices are creating optimism among suppliers of equipment and services. Gas turbine suppliers are anticipating industrial gas turbine sales of more than $40 billion per year over the next fifteen years. Component suppliers are also optimistic. Donaldson anticipates its gas turbine sales will increase 25 to 30% due to an expected improvement in the large turbine power generation market.
The markets for gas turbines, coal-fired power plants and nuclear generators is tracked in 'N043 Fossil and Nuclear Power Generation: World Analysis and Forecast' <http://home.mcilvainecompany.com/index.php/markets/2-uncategorised/113-n043>
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