Global Outlook

Natural Gas Versus Coal

Contributed by eResearch

The glut of natural gas unleashed by hydraulic fracturing - and the resulting low prices - make it seem like a no-brainer: Ditch coal-fired electric plants, with all their baggage about air pollution and water consumption, and switch to natural gas. Trends over the past year suggest that is starting to happen nationally, as natural gas has overtaken coal for generating electricity.

Use of coal to generate electricity was down almost 18% for the first seven months of 2012, compared with the same period in 2011, according to the U.S. Energy Information Administration. Natural gas use was up by 30%.

Low natural gas prices alone are not enough to prompt power companies to shift multimillion dollar investments. "Nobody’s going to tear down a half-billion-dollar coal plant to put in a new natural gas plant just because natural gas is slightly cheaper,” said Edward Hirs, an energy economist at the University of Houston. In a recent analysis, Hirs and his co-authors predicted no more than 20% of coal-fired electric power nationally would shift to natural gas within the next 20 years.

Politics may play a role in determining coal’s future.

The House of Representatives earlier this month passed the Stop the War on Coal Act of 2012, aimed at blocking federal regulations that could affect coal mining and highlighting Republican differences over energy policy with the Obama administration.The bill stalled in the Democrat-controlled Senate.

A federal appeals court last summer cleared the way for the Environmental Protection Agency to move ahead with additional efforts to limit greenhouse gas emissions from industry and vehicles, and the EPA is expected to introduce the first set of national limits on carbon dioxide from new coal-fired power plants.

"It is hard to know which way the politics will go,” said Steve Piper, associate director at SNL Energy. "The greenhouse gas standard is fairly new. That is going to make it hard to build new coal plants. If a new administration was hostile to that rule, they could probably get it stopped. But at the same time, everybody wants to embrace natural gas.”

Hirs noted that access to natural gas would become an issue if the number of natural gas-fired plants were to increase substantially. "If we replace coal plants in the Northeast with natural gas plants, we need a constant supply of natural gas,” he said, rather than relying on the same pipelines used to carry gas for heating and industrial production. "Until the government gets behind building more pipelines for natural gas and making the supply available for generators, we are not going to see wholesale change,” Hirs said.