Seminole Electric Cooperative, Clay Electric’s wholesale provider of electricity, maintains a balanced and diversified power generation portfolio that reflects a mix of technologies and fuel types. Seminole’s generation resources include coal and natural gas, as well as one of the state’s largest renewable energy portfolios.
Natural gas - a principal energy source used for many day-to-day needs, including heating homes and generating electricity - is found naturally in deep reservoirs underneath the Earth’s surface. Most recently, the United States and other countries have discovered additional supplies of natural gas trapped underground in dense shale rock formations. Marcellus Shale is one of the largest natural gas deposits in the nation.
During the past ten years, shale rock has become an increasingly important source of natural gas in part due to advances in horizontal drilling combined with hydraulic fracturing or “fracking.”
Fracking is a technique that injects “fracturing fluids” - water, chemicals and sand - deep below ground under high pressure. The fluids fracture the shale rock, allowing natural gas to move freely from rock pores into natural gas wells.
The combination of horizontal drilling and hydraulic fracturing has been the center of recent controversy due to concerns about gas leaks polluting water sources. In July 2012, the U.S. Environmental Protection Agency (EPA) completed tests on drinking water in a Pennsylvania village located above a portion of the Marcellus Shale formation and determined the water safe to drink, despite claims of pollution. The EPA is scheduled to release findings addressing additional claims later this year.
Most of the natural gas consumed in the United States comes from domestic production. U.S. natural gas production increased from 2006 through 2011 - when it reached the highest recorded annual total since 1973 because of shale supplies. In fact, electricity generated using natural gas was roughly even with coal for the first time earlier this year, according to the U.S. Energy Information Administration.
Traditionally, coal accounted for just under half of the nation’s electricity needs, while natural gas typically supplied approximately 20 percent. Coal had been the fuel source of choice due to lower prices and abundant domestic resources.
In February 2012, Seminole strategically shifted its generation portfolio to produce more electricity from natural gas in order to take advantage of the reduced prices and ample quantities. At the time, natural gas generation was more economic than coal-based generation.
As with any commodity market, natural gas pricing is a function of supply and demand. In the past, natural gas prices were volatile because of limited alternatives for natural gas consumption or production in the short run. Additional factors affecting the price of natural gas include infrastructure and pipelines, severe weather and hurricanes, and federal and state regulations, among others.
According to a July 2012 CNN Money report, natural gas prices have surged more than 70 percent during the past three months due to extreme heat and severe weather events across portions of the county, as well as additional demand from utilities switching from coal to natural gas for electricity generation.
So, what does this mean for the price of electricity? Utilities that depend on one primary fuel source for electricity generation could be disadvantaged when costs for that fuel source increase - thus leading to higher rates.
Balancing fuel use between its coal and natural gas fired power plants allows Seminole to take advantage of lower costs. The diversity in Seminole’s generation mix helps reduce exposure to changing market conditions - keeping rates affordable.