By Peter Gardett, Managing Editor, AOL Energy

electricity gridNatural gas prices are stifling power sector diversification and limiting earnings growth in the sector, bank analysts said amidst mixed first-quarter results forecasts for investor-owned utilities.

Earnings calls discussions for these companies have been dominated by natural gas prices, which remain the biggest single opportunity, and the biggest single problem, for electric power generators in the United States.

The U.S. lost five or six years of power demand growth during the recession, Barclays commodities and power research analyst Mike Zenker told AOL Energy. Power demand has since recovered slightly, but a combination of cheap fuel price outlooks for natural gas and regional oversupply of renewable generation are keeping prices for electricity low.

Low natural gas prices are weighing on power prices at utilities that build their price outlooks onto fuel costs, limiting investor enthusiasm for a sector already struggling to recover from the impact of the sharp recession that began in 2008.

Natural gas prices were trading at CME Group just above $4.25/'000 ft3 late on Tuesday April 19, less than half the price wellhead natural gas prices garnered in the same month in 2008, according to Energy Information Administration data.

With natural gas supply forecasts soaring in line with expanded drilling as hydraulic fracturing drilling techniques (better known as "fracking") access massive and previously-untapped reserves, utilities hoping to diversify their fleets of power plants face challenges building any units not fueled by natural gas.

In many cases, the heightened availability of natural gas generation due to low fuel prices is keeping older coal-fired power plants offline, Barclays' Zenker said. That will limit the impact of potential 2015 shutdowns for older facilities with higher emissions profiles impacted by Environmental Protection Administration rules, Zenker said, as many of those units will have already been replaced by natural gas units that are more affordable than retrofits on older coal generation.

Utilities reporting their first-quarter results in the coming couple of weeks will be focused on the upcoming summer peak generating season, but analysts say most expect sufficient capacity and limited demand-created premiums for summer electricity prices.

The National Oceanographic and Atmospheric Administration (NOAA) will release its latest forecast for the coming three months on April 21, 2011. The agency's forecasts are closely watched in the electricity industry, especially as summer approaches, and any adjustments to the official forecast could roil markets in traded electricity. In its last outlook for the months of April, May and June NOAA highlighted the ongoing La Nina effect, which keeps temperatures in most regions below average, excepting the interior Southwestern U.S. and parts of Alaska.

Regardless of weather patterns, expectations for power price increases have been put off to 2015 and beyond by bank analysts. A combination of steady demand recovery, transition of drilling infrastructure from natural gas to recovery of higher-priced oil and retirements of coal-fired plants in 2015 could contribute to a tightening U.S. power market by the middle of the decade.

"There is nothing on the demand side that will boost natural gas prices before 2015," Barclays' Zenker said, keeping electricity prices low.

AOL Energy, which launches this spring, serves the electricity sector as it innovates, reinvests and repowers with renewable generation and fuels. Follow AOL Energy on Twitter @Aolenergy and Peter Gardett on @petergardett

Increase your money and finance knowledge from home

Intro to Retirement

Get started early planning for your long term future.

View Course »

Socially Responsible Investing

Invest in companies with a conscience.

View Course »

Add a Comment

*0 / 3000 Character Maximum

11 Comments

Filter by:
T>J>Fitzharris

my tax refund will be used to help pay my property taxes.

April 23 2011 at 12:25 PM Report abuse +1 rate up rate down Reply
bhawkes328

OBAMA IS FIXING IT.!!!! HE IS SO GREAT ARNT YOU GLAD YOU VOTED FOR CHANGE...... SUCKERS

April 22 2011 at 10:12 AM Report abuse +1 rate up rate down Reply
amani4000

We live on Long Island and our electric bill is $170 a month. It's a two bedroom house and we conserve. These are just more lies to make you feel better about being poor.

April 21 2011 at 6:08 AM Report abuse +3 rate up rate down Reply
Frank Z

Listen to my radio talk show about new energy and see whats coming.

http://www.spectrumradionetwork.com/Archive/frank-znidarsic-todays-cold-fusion-research.html

Frank Znidarsic

April 20 2011 at 7:33 PM Report abuse rate up rate down Reply
donnareed4

We have been thinking about a new car, a hybrid, and of course all the info you read about is that are they really worth the extra cost? Well as I watch the $4 and $5 gas prices that the bood ******* speculators have produced, I made my choice. I would rather pay an extra 2or 3 grand to buy a car that will not put that money into buying gas . In 2008 the barrel was over $140 before prices got to this point and now the greedy SOBs want more money even faster. Shame on the GREEDY SOB's. But our choice is buy a hybrid and let those speculators/investors suck that gas that I will NOT be putting into my car or my childrens cause I will make sure they also have hybrids or electrics. Cause we need to all do something to show me them we DO hate high pricesbecause of the greed of others!

April 20 2011 at 6:34 PM Report abuse +2 rate up rate down Reply
HAPPY JACK

NOTHIN IN THE ENERGY DEPARTMENT WILL BE CHEAP THIS SUMMER OR THE NEXT SUMMER....DID YOU HEAR ABOUT GAS AT THE PUMP WILL SOON BE SOLD BY THE QUART AT 1.39 9/10....A QUART NOT A GALLION........I THINK THATS A GOOD IDEA.........THIS WILL BLEND IN JUST RIGHT THE WAY THE GROCERY STORE ARE DOING BUSINESS USING SMALLER PACKAGES ,WITH LESS FOOD INSIDE..AND NOT GOING UP IN PRICES WITH THAT ITEM.......

April 20 2011 at 4:13 PM Report abuse +5 rate up rate down Reply
puppydrum21

it is just another market for the spexulators to get into then watch the price

April 20 2011 at 4:10 PM Report abuse +3 rate up rate down Reply
WILLS

Interesting! Really! Now we have bank anaylsts making power bill determinations???????
Next they will forcast the weather. The blind leading the blind. Show me a power company in the U.S. that is NOT - purposing a rate increase, has not had rate increases last year, has not had a rate increase of at least one per year for the last ten years. Given that this information is factual, I see no reason that all of the power companies are going to stop demanding more money for the next three years. The bankers do not know the proverbial "A-- from a hole in the ground". Why wait for NOAA? All weather patterns indicate a HOT summer and a COLD winter for 2011, including more of the nasty storms that are now prevelant along with some drought and floods. The last will put more cost on the power companies in the way of line repair.

Someone in the comments asked why not run cars on natural gas?
The answer is because the government does not mandate a filling station network and there remains a storage tank issue. When you go to fill your bar-b-q tank you have your answer. Said tank must be removed from the grille and filled by a knowledgeable attendant. These tanks are filled by weight, and that is what stops the filling process.
There is no present method to accurately fill a permanent tank in a vehicle.

April 20 2011 at 2:02 PM Report abuse +4 rate up rate down Reply
scipiochris

Don't worry. Whatever good new Domestic Natural Gas production does to contain U.S. consumer electricty prices, UhOhbama will crush it with stran(re)gulations in no time flat: "Barack Obama acknowledges fracking concerns"
http://www.politico.com/news/stories/0411/53423.html

April 20 2011 at 12:47 PM Report abuse rate up rate down Reply
KSMITHSPECTRUM

I guess this author doesn't live in the United States. Gas prices are fixed for the consumer. They don't fluctuate down. Welcome to Socialism it is not a free market system. Do research before writing bad articles. Public Utility commisions set the price and they arn't going down despite what you may think.

April 20 2011 at 12:42 PM Report abuse +4 rate up rate down Reply