NATURAL GAS:

Pa. plant 'born of Marcellus' gets final permits

Pennsylvania officials are touting what they say is the state's first new power plant being built to capitalize on cheap gas from the Marcellus Shale.

The Pennsylvania Department of Environmental Protection yesterday approved the air plan submitted by Moxie Liberty LLC, an independent power developer based in Vienna, Va. The approval is the last one Moxie needs to begin construction of the plant, which will sit in an area suffused with "dry" natural gas drilling and provide the grid with up to 936 megawatts.

The approval is the latest example of a state market where the economics have tilted in natural gas's favor, leading to increased operation of old natural gas plants -- and now, construction of new ones.

For Moxie Energy LLC, the parent company, the goal of building two plants in Pennsylvania is getting closer. It is awaiting approval for a similar plant, in nearby Lycoming County. With both plants, the aim is to burn low-cost Marcellus gas mined nearby, then sell it into high-value Northeastern power markets.

Aaron Samson, Moxie's president and founder, said Pennsylvania already has natural gas power plants but these two are "kind of the first ones that were born of Marcellus."

He said both are "in the gas patch"; that is, they sit in a four-county area where drilling yields natural gas with relatively little oil or natural gas liquids alongside it.

This "dry gas," as it is known, is being produced less and less around the country as a result of low gas prices. But Samson said even with the cutbacks, there is still plenty of gas to fuel the plants Moxie wants to build.

That sews up the supply side of the equation. On the demand side, he said, it was easy to rationalize building a power plant there.

"It's a combination of Marcellus and the PJM system," he said, referring to the PJM Interconnection, a major grid operator in the Northeast. "It's the largest of the systems, and so when it comes to transparency, liquidity, financeability on the certainty of that ... it's the best market in the U.S."

Moxie estimates that each of its two plants -- which are the first two it has ever attempted to develop -- will require more than $800 million of investment. Samson said the money has been put forward by a group of major banks that often finance power projects.

The project was caught in a brief mix-up yesterday regarding the use of natural gas in Pennsylvania. In its first press release, the Department of Environmental Protection called Moxie's project "the first power plant in Pennsylvania to run on natural gas, including gas from the Marcellus Shale."

DEP Secretary Mike Krancer celebrated the moment, calling it a "red-letter day."

The DEP then responded to claims that Pennsylvania has burned natural gas in power plants for decades, and it modified the press release late in the afternoon. It now describes "the first new power plant in Pennsylvania to run at least partially on locally grown Marcellus Shale gas."

Regardless of the milestones, the trend in Pennsylvania is clear: Natural gas is eating into coal's market share.

According to the federal Energy Information Agency, coal accounted for nearly 58 percent of the state's net power generation in 2000; natural gas accounted for 1.3 percent. By 2010, coal had been whittled to 48 percent of net power generation in Pennsylvania; natural gas had gained to 14.7 percent.

John Hanger, a consultant and former secretary of DEP, said Pennsylvania added more than 9,000 MW of natural gas capacity between 1999 and 2005. Some of these power plants were even located above prime parts of the Marcellus.

The difference, he said, was that these plants did not run very much, often staying idle 80 to 85 percent of the time. "Gas prices were too high, and the gas plants were uncompetitive with the coal plants," he said. "Today the opposite is the case."

The low natural gas prices have made it much more economical for the gas plants to fire up their turbines -- sometimes at a 50 percent operating factor, or half of the time -- even if Marcellus gas was not part of their original business vision.

As older coal plants are retired in Pennsylvania, the thinking goes, natural gas is becoming less of an "as-needed" fuel and more of a fuel that is burned as baseload -- a load that was once carried almost solely by coal and nuclear power.