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HOUSTON--Many in the U.S. power business are still skittish about the oil industry's promise of abundant, cheap natural gas for the foreseeable future. But some executives are factoring that promise into their crystal ball.
"We welcome it, but it makes us a little nervous," said Dominion Resources Inc. (D) Chief Executive Thomas Farrel at the IHS Cambridge Energy Research Associates annual conference here, reminding the audience that power companies that over-invested in natural-gas-fired plants were burnt by high prices in 2007 and 2008.
However, Farrell said Thursday that he expected natural-gas-fired electricity-generation to eventually rise to 35% or 40% from about 20%. The rest will be provided by a combination of nuclear and renewable sources of energy, he said.
That power companies buy into the natural-gas story is key for U.S. energy companies, whose success in unleashing massive amounts of gas during the past five years backfired in the form of decade-low prices for the commodity, below $2.50 per million British thermal units. Now they need to see demand for their product rise in order to wipe out the supply overhang, and power companies are expected to provide the bulk of that appetite.
Natural-gas companies said that the U.S.'s rich trove of natural gas will last well over a century. "We're not going to have that type of volatility we had in the past," said Apache Corp. (APA) Chief Executive Steve Farris.
But power companies "don't want to overcommit in any direction" based on promises about the future, because the "future is a very long time," said IHS CERA Chairman Daniel Yergin. "They've been through these cycles before," and they remember paying $13 per mmBtu just a few years ago, he said.
But the fact that they're beginning to factor the gas bounty from the shale revolution into their forecasts and decisions is a sign of the radical change in the U.S. energy balance, Yergin said.
Michael Morris, non-executive chairman of American Electric Power Co. Inc. (AEP), said that natural gas had more effect on nuclear power than the Fukushima disaster in Japan that created a global scare a year ago. NRG (NRG) CEO David Crane echoed that sentiment, saying that the company gave up on a nuclear plant in Texas after Fukushima, a decision that would have been forced anyway by natural-gas prices.
Still, some power providers refuse to put all their eggs in the natural-gas basket. "You need a diversity in fuel supply," said Steve Kuczynski, CEO of Southern Nuclear Operating Co., which expects to add new nuclear capacity in Alabama and Georgia in the next five or six years.
-By Angel Gonzalez, Dow Jones Newswires; 713-547-9214; email@example.com
--Paul Rekoff contributed to this story