July 09, 2010
Ken Silverstein
EnergyBiz Insider
Editor-in-Chief
Tougher air regulations that hover over the utility market place are pitting the fossil fuels against one another. Environmental disasters are furthermore compounding the issue and forcing coal and natural gas to square off.
The battle has begun: The natural gas industry is saying that new exploratory technologies are allowing non-traditional forms to be discovered safely -- at levels that increase the supplies for decades to come. Coal representatives are responding that coal still provides twice the electricity of other fuels and that it will remain comparatively inexpensive -- and become much cleaner.
"Coal is providing real jobs, real economic opportunity and affordable and secure energy," says Hal Quinn, chief executive of the National Mining Association in Washington. Coal will continue to provide the preponderance of fuel needed to make power, he adds, noting that it will continue done at a "fraction of the cost" of the natural gas -- a price that will remain "flat" until 2035.
Until the BP oil spill, the natural gas sector had been on a roll having been given greater drilling rights in the coastal regions. Even though the public perception of the industry has been altered, its advocates are still emphasizing that natural gas releases about half the greenhouse gas emissions of coal. They are also citing the Congressional Research Service that is saying if older coal-fired plants were replaced with natural gas facilities then 20 percent fewer heat-trapping emissions would be released.
Coal now provides about half of the fuel used by the country's electric generators while natural gas supplies about 20 percent of it. The issue has taken on a much higher profile in the wake of the climate change debate now reverberating throughout Capitol Hill. There, a majority of lawmakers -- although not necessarily enough to pass a bill -- have endorsed legislation to cut carbon levels by 80 percent by mid Century.
If Congress fails to act, though, the Environmental Protection Agency has proposed rules that it says will be enacted. On December 15, 2009, the EPA published its final rule, noting that such releases would endanger public health and welfare. Congress, obviously, has the power to alter or to suspend that authority -- something that could be done through the existing climate bills.
While some in Congress are trying to either stop the EPA altogether or at least delay it, it remains unclear what will happen. Nevertheless, the country is trending green, meaning that utility coal operators will be forced to use the best available technologies or switch to cleaner burning sources.
"It's time for policymakers to recognize the new domestic supply reality for natural gas," says Donald Santa, president of Interstate Natural Gas Association of America.
The Expectations
Regardless of what happens on Capitol Hill with respect to climate change, some analysts are saying that current parameters set by the Clean Air Act will serve to curb coal use. Bernstein Research issued a report that says tougher sulfur and mercury restrictions will force out older coal-fired plants and lead to more natural gas facilities.
Hugh Wynne of the research firm says that it will become increasingly costly to operate coal plants as a result of current rules. As such, coal use will fall by 17 percent by 2015. Natural gas use, meanwhile, will increase by 16 percent at that time.
"The cost will be prohibitive at certain coal-fired power plants, particularly those older, less efficient units ...," says Wynne. "A widespread requirement to install sulfur dioxide scrubbers, therefore, is likely to result in the accelerated retirement of a portion of the coal-fired fleet. The power output of the retired units is likely to be substituted with generation from the nation's gas-fired plants."
While natural gas prices will remain relatively low at $5 per million BTUs, the U.S. Energy Information Administration is saying that the expected increase in demand will bode well for the coal sector. It is projecting coal use to rise by 3.9 percent this year and another 2.3 percent next year.
The agency goes on to say that over the next 20 years it expects the equivalent of 290 500-megawatt coal plants to be constructed. Still, it says that coal's market share will fall by 5 percent during that time. Renewable energy and nuclear energy will compensate, it adds, noting that electricity demand will rise by 1 percent yearly over two decades.
If national policy were to encourage utilities to switch from coal to natural gas it would result in much higher prices for all consumers, say coal executives and manufacturing representatives. Such a move would furthermore hurt a segment of the economy that is now in the midst of trying to create carbon capture and sequestration technologies.
"Clean coal technology is a vital component to putting America on the road to a low carbon energy infrastructure," says Keith McCoy, vice president for energy and resources policy at the National Association of Manufacturers. "The development and deployment of clean coal technologies will allow our nation's electric utilities to cleanly utilize this nation's most abundant and reliable domestic energy resource."
A rebounding economy will surely bode well for both coal and natural gas producers. Rising energy demand along with the increased revenues will provide both the resources they need to improve their extraction and emissions technologies. The improvements are essential in a marketplace where each is vying for an ever-larger share of the energy pie.
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