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By Lou Gagliardi on Mar 18, 2013 with 9 responses

Power Generation: Battle Between Coal and Natural Gas

The battle for market share in power generation is primarily between historically abundant and relatively cheap coal and environmentally cleaner but increasingly abundant Natural Gas (NG).

The increasing supplies of NG driven by the productivity of unconventional shale exploration and drilling has pushed NG prices lower over the last few years. With lower NG prices has come greater NG use as a fuel source in power generation.


While many in the media have sounded the death knell for coal as a power fuel source, and in the very long-term I think coal usage will gradually diminish, it will take years — perhaps even decades — for coal to be relegated to an insignificant role in power generation, but I am convinced it will occur.

The cost of producing clean coal is expensive – scrubbing is costly, and the overall cleaner environmental and lower economic cost of NG combined cycle power generation is too competitive. Coal fired plants are being shut down or retirement hastened.

However, the demise of coal use in power generation will be in fits and starts, and we are seeing this pattern unfold currently. As I pointed out in last week’s column Short-Term Trend in U.S. Natural Gas Prices Point Higher,although NG has been recently heading higher driven by a seasonal tailwind of cold weather; nevertheless NG prices are at a nine year low and winter is drawing to a close that should spell a break in NG’s recent climb.

Greater NG production has led to lower NG prices that in turn have led to lower NG electric power prices that are good for the retail consumer; but lowers the “spark spread” for power generators – the gross margin from selling electricity compared to the cost of NG feedstock used in generating the electricity.


Over the years, NG has taken market share from coal. In 2002, power generation was provided 50% by coal and 18% by NG; by 2012 coal’s power generation market share has declined to roughly 37%, with NG increasing to 34%, a stunning reversal of fortune. Most interesting is that the respective rate of decline in coal and the increase in NG’s market share began to accelerate in 2009, the beginning of significant production from unconventional shale sources.


This pattern of substitution driven by price is clearly evident when comparing 2011 to 2012. NG increased its market share by greater proportions in 2012, when NG prices were at their lowest point from March to May of 2012.


However, the reason that the decline in coal consumption for power generation will be gradual and irregular is that when NG prices increase as they did by the summer of 2012, coal prices became more attractive relative to NG and power generators switched to coal from NG.


Long-term, NG is the preferred fuel source for power generation, with both the environment and the consumers at the retail end of the pipeline benefiting. But the road will be bumpy.

  1. By Ashish on March 18, 2013 at 10:23 am

    Right now in India, the trend is exactly reverse. NG is almost unavailable for Power generation and the country is running on cheaper coal-generated electricity.The trend seems to prevail for the next five years.

  2. By brett on March 18, 2013 at 10:44 am

    have you seen what ohio state is doing with clean coal. it may not be gone as soon as you may think.

  3. By Russ Finley on March 19, 2013 at 12:57 am

    Using natural gas for heat is very efficient. Roughly 90% if you have a high efficiency furnace. Using it to make electricity seems like such a waste, maybe 35% efficient. If we had a clue, we would displace coal with nuclear, use natural gas for heating and fleet transport like buses, garbage trucks and taxis. But in a free market short term profit rules.

  4. By Tom G. on March 19, 2013 at 10:16 am

    Hi Russ:

    If you need a good reference for heat pumps vs other fuels try the link below.

    Living in the desert Southwest like I now do makes a heat pump an ideal solution for my home. Its really hard to beat a COP of 3+ and of course you need air conditioning to just stay alive in the summer, LOL. BUT, if I still lived in Minnesota I would most likely have a ground source heat pump if I had the space with maybe a Combined Heat and Power unit as a backup since we did have ice storms and tornadoes.

    Have a great day.

  5. By ben on March 19, 2013 at 10:28 pm

    I think the road may be less bumpy than imagined, so long as the price of Ng stays low; which probably requires a leap of faith given international demand for the product.
    The recent cost of US supplies appear unsustainable notwithstanding new production, as fuel-switching continues apace in power generation, industrial use and, most interestingly, as a substitute transport fuel. Notwithstanding the specter of possible demand destruction that could accompany an economic downturn (with the jurystill out on that one thanks to the EU’s monetary challenges and our own fiscal failings), Ng remains the economy’s silver lining. That alone may signal prospects of some recalibration of market expectations in the months ahead.
    Thanks for the thoughtful analysis, Mr. Gagliardi. It’s too hard to tell you that know well of that which you speak.

  6. By Sid Abma on March 20, 2013 at 1:16 am

    Lets teach America to use it’s abundant source of natural gas efficiently.

    Why in the age of Energy Efficiency is so much of this energy still being blown into the atmosphere as HOT exhaust?
    Natural gas can be consumed to well over 90% energy efficiency. This is not new stuff.
    How many condensing boilers and furnaces and condensing water heaters are being used in homes, venting COOL exhaust out the wall through PVC pipe.
    America has only 1 flavor of natural gas and commercial buildings and industry and the power plants all use the same natural gas.
    Increased Natural Gas Energy Efficiency lessons need to be taught to our governments and those other large consumers of natural gas. They too can be using their natural gas efficiently with the technology of Condensing Flue Gas Heat Recovery.
    Recover the heat energy from the waste exhaust gases, and use it inside the building or facility. The DOE states that for every 1 million Btu’s of heat recovered from these exhaust gases, and utilized efficiently, 118 lbs of CO2 will NOT be put into the atmosphere.
    What can this do for our environment?
    What can this do for our economy?
    Imagine the converted coal to natural gas reconstructed with NO chimneys. The heat energy will be recovered with this condensing flue gas heat recovery equipment and this heat energy will be consumed efficiently, in one application or another.
    Full time jobs will be created with this utilized recovered heat energy.
    It’s time for America to utilize this natural gas gold mine. What natural gas is NOT wasted today, will be there to be used another day, or for another purpose.

  7. By ben on March 20, 2013 at 7:37 am


    You are so right to emphasize greater efficiency in the use of NG. The environmental benefits are no doubt significant, even as there’s an opportunity to shepherd water resources much more efficiently. How widely is CFGHR working in conjunction with CCHP/ trigeneration systems? Might one assume that biogas from waste streams poses the similar opportunities with the added advantage of coming from renewable sources? The points you make about the virtues of heat recovery make great sense as the cost of energy inevitably rises quite apart from the GHG challenges that we all need to take a hand in mitigating in the days ahead.
    I’m pleased to see that some old colleagues over in the administration somewhat belatedly offering more visible advocacy for energy efficiencies. One would expect “conservation” not to be a dirty word these days, but the old ghost of President Jimmy Carter wearing his cardigan and lowering the White House thermostate is, I guess, just a little too much baggage to bear. Maybe some day we’ll get serious.

    I look forward to learning more about your energy-related insights and the practical engineering that accompanies such logic.

    Thanks for your own advocacy. Every bit of it helps.


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