The Supply Question

The Supply Question

October 02, 2009

Bill Opalka
Editor-in-Chief
Energy Central

Not long ago there were two widely held views when it came to the fossil fuels that powered nearly three-quarters of the electric generation industry: the United States was the "Saudi Arabia of coal," with a huge supply that would last well over two centuries, and the increasing reliance on natural gas to produce electricity would stress this country's ability to meet the demand from domestic, or even North American, sources.

Now those assumptions are being turned on their heads as a combination of reports examining recoverable resources are gaining currency. Simply put, separate analyses by government agencies and private organizations indicate recoverable coal resources are not nearly as plentiful as once thought, while a combination of new discoveries and technological advances have made supplies of natural gas much more bountiful, perhaps enough to last another century at current rates of consumption.

Make no mistake -- the United States is not running out of coal. We're still talking about a recoverable resource that could last about 120 years, but that's only about half as long as previous estimates that pegged the U.S. supply at lasting at least 240 years. The U.S. produces 1.1 billion tons of coal annually and more than half the electricity generated comes from coal-fired plants.

"What these reports show is that we really need a diverse supply for our energy and we can't become reliant on any one or two," said Richard McMahon, executive director of energy supply for the Edison Electric Institute. "Both have a future and we're still looking at a coal supply that will last well over 150 years."

But recent studies are challenging assumptions about the supply of coal, as extraction has become more expensive. The U.S. Geological Survey has been studying U.S. coal supplies since 2004. The agency began with the Powder River's Gillette coal field, an 80-mile-long strip in northeastern Wyoming that contains the nation's 10 top-producing mines where some 1.2 million tons are mined every day and which represent a goodly chunk of the nation's coal supply. Production rates there will now fall short of earlier predictions.

Nationwide and in 2007, the Energy Information Administration said the U.S. had a "demonstrated reserve base" of nearly 500 billion tons of coal. It regarded 267 million tons of that as "economically recoverable," enough for 240 years.

Several factors have already put coal in the doldrums, even before these recent questions about supply emerged. The recession has reduced demand for electricity. Pending legislation would restrict carbon emissions not only promise to make coal generation more expensive. That uncertainty, along with the financial crisis, caused companies to cancel dozens of power plants over the last few years. And clean coal's ascendancy, which may or may not happen if carbon capture technology develops, is years away.

The Competition

As a result, coal production may drop this year by as much as 100 million tons because of the recession. Prices for coal from the Powder River Basin are down nearly 30 percent from a year ago, to about $8.50 a ton.

Meanwhile, a new study suggests the amount of natural gas available for production in the U.S. has increased 58 percent in recent years. New discoveries, coupled with technological advances in drilling techniques, particularly in shale beds, have fed that boom.

In June, the Potential Gas Committee reported that the U.S. has 2,074 trillion cubic feet of natural gas. That's a 35 percent increase over its last estimate from 2007, of 1,532 trillion cubic feet. But much of that will not be recoverable at current prices, as the economic slowdown has depressed natural gas prices to levels not seen in recent years. A gas glut has pushed prices to about $4 per million cubic feet in the summer of 2009 compared with $13 for the same unit a year earlier.

But when economic activity resumes and power prices climb, shale deposits will be there. "This is a huge increase in that the Energy Information Administration estimates have increased 35 percent from two years ago," said Ed Ireland, executive director of the Barnett Shale Energy Education Council in Texas. Barnett Shale already accounts for 6 percent of domestic U.S. production. Barnett has been known since the early 1980s but for the first 20 years a different technology made it too expensive to drill -- costs that are destined to increase with new regulations.

That's why most analysts say that the country cannot afford to gamble on one energy source and that it must diversify. As for natural gas, it's here to stay but it will have competition.

"We see natural gas a transitional fuel as the nation switches to more renewable energy and as clean coal develops," says Edison's McMahon

With its carbon emissions about half those of coal, natural gas has been displacing coal in new power projects proposed across the country. While the future may be hard to predict, it looks like untraditional gas may be competing with clean coal, both of which will be going to head-to-head with alternative energy sources as well as nuclear.