Miller: 'Gas prices are now competitive with coal

Miller: 'Gas prices are now competitive with coal'

May 23 - McClatchy-Tribune Regional News - Debra McCown Bristol Herald Courier, Va.

It's true that the low price of natural gas is partially to blame for the downturn in the coal industry, said Mike Miller, senior vice president with Marshall Miller and Associates, an engineering and geological consulting firm based in Bluefield, Va.

But, he said, if it weren't for increasing federal government regulation, utilities wouldn't be switching so quickly from coal to gas.

"Gas prices are now competitive with coal," Miller said, speaking Tuesday at this year's Eastern Coal Council conference. "That by itself was not the cause of all the switching that took place, but when gas became competitive with coal, with all the regulatory issues that began hammering on coal ... that transition began to take place."

In the past few years, the use of coal for electric power generation has decreased and the use of natural gas has increased. Based on figures Miller presented, about 14 percent of the nation's electricity mix has moved from coal to gas.

Also according to figures he presented, the share of the nation's electricity that comes from coal has decreased from 51.1 percent to 37.8 percent.

Gas revolution

The production of natural gas has increased rapidly in the past decade, from a point in 2002 when U.S. natural gas reserves were thought to be in decline.

The difference was made by improvements in technology, enabling gas to be produced from shale formations where it could not be reached before. The development began in the Barnett Shale in Texas, Miller said.

Among the newly productive formations is the Marcellas shale, which has made headlines for its productivity as well as the controversy surrounding drilling, with activists raising both environmental concerns and property rights issues.

"This has been nothing short of a revolution," Miller said of the new technology. "Basically, some new horizontal drilling and well completion techniques have made enormous natural gas deposits, and they are enormous, once thought unrecoverable."

With new techniques, gas producers can drill horizontally for a mile or more through the rock formations deep underground that contain the gas. In some cases, a well can be drilled horizontally in a dozen different directions.

Hydraulic fracturing, a process of stimulating gas wells with water, sand and chemicals to increase production, also has developed further for use with horizontal wells.

Gas vs. coal

With new gas fields all over the nation opened up by the new technologies, the supply of natural gas has increased, eliminating historical volatility in natural gas prices, Miller said.

The price of natural gas has dropped from about $7 per unit to $2, making it competitive with coal, he said.

With natural gas plants cheaper to build and operate -- and preferred from a government policy perspective because of lower carbon dioxide emissions -- the lower and more stable price of natural gas has encouraged utilities to switch.

Appalachian Power's Clinch River Power Plant in Russell County, Va., is among those where plans to shut down coal-fired units and convert to natural gas have been announced.

"The natural gas development and lower prices facilitated this," Miller said, "but the switching of the last two or three years would not have happened if it hadn't been for the regulations."

Ultimately, he said, he believes gas production will be reduced to a level that leaves the price between $3.50 and $4 a unit while meeting increased demand.

"Hopefully that will prevent more switching for that reason over to natural gas from coal," Miller said. "Domestic coal demand should eventually stabilize at near its current reduced level."

The bright spot for coal, he said, is the export, and he believes that is where the industry should focus its efforts.

dmccown@bristolnews.com

(276) 791-0701

YOU SHOULD KNOW

U.S. energy use

Oil -- 37.2 percent

Natural Gas -- 27.2 percent

Coal -- 23.0 percent

Nuclear -- 8.4 percent

Other -- 4.3 percent

U.S. electricity generation fuel

2001 2013 (projection)

Coal -- 51.1 percent 37.8 percent

Natural Gas -- 15.1 percent 29.3 percent

Nuclear -- 20.9 percent 20.4 percent

Hydroelectric -- 5.8 percent 6.8 percent

Oil -- 6.5 percent 1.3 percent

Others -- 0.8 percent 4.4 percent