Oil production alone has risen 34% since 2005, and the US continues to be the world’s chief producer of natural gas. Despite the surge in hydrocarbon resources, the coal industry is suffering.
The vast natural gas supply unlocked by hydraulic fracturing and horizontal drilling has pushed prices below $4.00 per MMbtu. The low price of natural gas has made it an increasingly popular energy option. Since 2008, natural gas consumption has risen 37%.
Coal’s Losing its Lure
Aging coal factories, on the other hand, are having difficulty adjusting to the transformed market. According to the Energy Information Association’s (EIA) 2013 Annual Energy Outlook, the retirement of coal plants is expected to outpace new additions through the year 2040. Coal production, in turn, is expected to trend downward. The decision to retire a plant involves environmental regulations, electricity demand and the price of coal in comparison to natural gas. Even though coal remains America’s top source of energy consumption, its stake is rapidly declining. Coal is estimated to account for 35% of the country’s energy in 2040, down from 42% in 2011. It accounted for 51% in 2003.
If natural gas prices rise in the near future, EIA expects coal to recover some of its lost ground. However, the cost-effectiveness and manageability of natural gas sets it apart from its competitor. Gas can be sold at 50% higher than coal and still compete, and the construction of a new plant is cheaper and easier due to coal’s emissions output. In fact, coal emits twice as much carbon dioxide as natural gas, and the increasing environmental regulations are making coal production exceedingly difficult.
The Environmental Protection Agency’s (EPA) proposed new emissions standards on September 20, 2013, will require all existing power plants to construct emission-catching facilities. The Proposed Carbon Pollution Standard for New Power Plants would call for new fossil fuel-fired power plants to meet an output-based standard of 1,000 pounds of carbon dioxide per megawatt-hour of electricity generated. That standard would effectively prohibit the construction of new coal-fired power plants without carbon capture and storage. Currently, the EPA is evaluating comments and expects to issue a final rule in 2013. Because the rule is not yet final, it is not assumed to take effect in any of the 2013 cases.
Carbon capture, the process of capturing and storing emissions, is attempting to be commercialized by a handful of groups worldwide, but the process can be dangerous and costly. Statoil was forced by the Norwegian government to close a high-profile carbon capture plant on September 24, 2013. The plant began construction in 2006 but its operations are suspended indefinitely due to “rising costs.”
According to an article by Mark Drajem of Bloomberg, the installation of carbon-capture instruments would have a costly toll on coal producers. Some utilities and Republicans in Congress have all warned that the EPA’s new standard would effectively outlaw construction of new coal-fired power plants.
Kevin Crutchfield, CEO of Alpha Natural Resources, says modern technology simply cannot meet the standards set forth by the EPA. As stated, the amount of emissions are to be capped at 1,000 lbs. of carbon monoxide per megawatt-hour. Advanced coal facilities currently produce 1,800 lbs. of carbon monoxide per megawatt-hour.
Utilities such as Southern Co. are already shifting away from coal to natural gas due to recent trends in energy production.
New coal plants will now be more expensive to develop, and the aging of several factories shows coal is expected to remain on the decline. At least 100 coal-fired plants are scheduled to be shut down, while the amount of coal-fired electricity the U.S. produces as a share of total generation is at its lowest level since the early 1970s. Add in the popularity and effectiveness of natural gas, and coal companies are being forced to export their resources.
“One of the reasons no one is building coal plants in the U.S. is that it’s too expensive,” said John Coequyt, director of the international climate program at the Sierra Club. “It’s also true that in developing countries, when you add that the international market for coal fluctuates a lot, that electricity from coal is very expensive even without pollution-control equipment.”
Meanwhile, the average costs of natural gas production fell 36% from 2006 to 2010, while other energy sources continued to rise. According to EIA, 37% of electricity was generated from coal in 2012, and the use of natural gas generated 30% the same year. Electricity generation using natural gas can become attractive, relative to coal-fired electricity generation, in some areas of the country when the price of gas on an energy equivalent basis becomes less than the price of coal. Large volume consumers in particular can switch its choice on short notice, and the consistently low gas prices have attributed to its rise in consumption.
The use of nuclear energy is also slipping. The critique of nuclear power has become harsher in 2013, as the Fukushima disaster has forced the closure of several plants in Japan. Its effects on the environment are now being called one of the worst disasters in history. The findings contributed to the Vermont Yankee’s closing, an issue previously covered in an OAG360 article. The Yankee use of the same reactor-cooling technology as Fukushima factored into the shutdown decision. Even though the plant will close after its 2014 cycle, the decommission process is expected to take 60 years.
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