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By Robert Rapier on Apr 13, 2016 with 12 responses

Natural Gas Bankrupted The U.S. Coal Industry

Coal Goes Bust

Today, as had been expected, Peabody Energy Corp. (NYSE: BTU) — the largest coal producer in the United States — filed for Chapter 11 bankruptcy protection. Following the announcement I immediately began to receive press releases from various environmental organizations crediting the rise of renewable energy and/or the campaigns to divest investments from fossil fuels for the decline in the U.S. coal industry.

A press release from 350.org declared Peabody’s bankruptcy “A harbinger of the end of the fossil fuel era.” While I applaud a transition away from coal, these organizations are falling all over themselves to give credit to everything except the primary culprit behind the demise of the U.S. coal industry, which is natural gas (as I demonstrate below). In fact, many of these organizations have circulated stories — usually from those with clear vested interests — intended to discredit the indisputable role that natural gas has played. So let’s take a closer look. 

Taking Undue Credit 

There are in fact a number of reasons for the U.S. coal industry’s troubles, but the biggest factor is displacement of coal by natural gas in the power generation sector. The shale boom created a surge in U.S. natural gas production, and natural gas prices have in turn become depressed. Environmental regulations have also been passed that require power producers to reduce greenhouse gas emissions. Natural gas produces a lot less carbon dioxide per unit of power produced than does coal, so this combination of abundant natural gas supplies, low price, and environmental regulations has caused a pretty dramatic shift in the power markets over the past decade.

Recently the Energy Information Administration (EIA) published a graphic that highlighted the role of natural gas in displacing coal:

EIA Gas Coal

Environmentalists who credit the role of renewables in the coal industry’s woes often emphasize that most new electrical generating capacity lately has been renewables. In fact, in the Federal Energy Regulatory Commission’s (FERC) most recent “Energy Infrastructure Update”, the agency noted that 468 megawatts (MW) of wind power and 145 MW of solar power accounted for 100% of new electrical generation capacity brought into service in January 2016. FERC’s December 2015 “Energy Infrastructure Update” revealed that renewables were responsible for 64% of all new electrical generating capacity installed last year.

But capacity isn’t production. Coal provides what is known as firm power, which means power that is normally available for transmission as needed. Because renewables like wind and solar power are intermittent, they require much more installed capacity than does natural gas to displace coal power. The capacity factor — that is the amount of power produced divided by the power that would be produced if the power source was producing at full capacity at all times — is around 90% for nuclear power, 70% for geothermal power, and 50-70% for coal-fired and natural gas-fired power. But capacity factors for wind and solar power are much lower.

Thank Natural Gas

This is why, despite the fact that renewables took the lion’s share of new electrical generating capacity installed last year, it was natural gas that seized the largest share of power production from coal utilities. EIA numbers show that between 2014 and 2015, the amount of power generated from coal in the U.S. fell by 226,000 gigawatt-hours (GWh). At the same time, the amount of power produced from natural gas increased by 208,000 GWh.

Renewables, on the other hand, contributed a mere 10,000 GWh year-over-year increase. That’s not nothing, but it’s certainly not a huge contributor to coal’s decline.

This can clearly be seen in the longer-term trends as well. In the EIA graphic above, since 2000 coal’s market share has fallen from around 50% to this year’s estimated 32% (down 18%). Over the same time frame, the market share for natural gas has increased from around 15% to this year’s estimated 33% (up 18%). Thus, almost all of coal’s losses in the power sector since 2000 can be explained by increased natural gas consumption.

The reason this matters is that some have suggested that natural gas has no future in the power generation sector, and that we should transition directly to renewables. The argument is that natural gas is still a fossil fuel, and thus contributes carbon dioxide emissions to the atmosphere. But natural gas is a vastly cleaner option than coal, and more importantly it has already demonstrated that it can displace firm power produced by coal at a large scale. If we fail to recognize important issues of scale and intermittency in power generation, we may create future supply risks by expecting renewables to do too much, too soon.

Conclusions

Several times a week I get press releases from environmental organizations that are misleading and/or factually incorrect. I have received several today following the bankruptcy announcement of Peabody Energy. Without a doubt, some of these organizations do good work, but if one is to make the argument that money is a corrupting influence, you have to believe that some of these organizations aren’t immune from that influence.

A few years ago I highlighted some of the financials of a prominent environmental “non-profit.” They had $250 million in assets, annual donations of more than $100 million, and a dozen employees listed as receiving more than $200,000 a year in compensation. That’s pretty lucrative, so it’s not hard to understand why some might succumb to some deception to sell their product. See this article for an example of deception by 350.org’s Bill McKibben regarding natural gas. A study in Science showed increasing methane in the atmosphere is coming primarily from agriculture. McKibben referenced the Science article, but then ignored the study’s conclusions — insisting instead that fracking is to blame. And if you just send 350.org a donation, he will surely prove it.

So don’t expect to receive to receive a fully truthful account of why the coal industry is in trouble from environmental organizations. You can get that from me, but you don’t have to take my word for it either. You can go to the Energy Information Administration and verify the shifts in the power sector for yourself.

Link to Original Article: Natural Gas Bankrupted The U.S. Coal Industry

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  1. By Alex Johnson on April 13, 2016 at 4:36 pm

    It has been amazing to see how quickly the nation has been switching to natural gas. For years the common thought was that the investment in coal, and its ability to provide cheap power, would keep it around for decades. But just a couple years of cheaper natural gas has caused a lot of power companies to quickly adopt natural gas. It helps that with wind and solar becoming more prevalent natural gas boilers can adjust to a changing network more quickly than coal, and the footprint is much much smaller for a similar sized (MW) nat gas plant.

    The other part that does get me excited for the transition that has happened is that with the nat gas network in place it does open the door to renewable natural gas production. This is a long ways off on a scale that would be meaningful here, but seeing how many facilities generate renewable nat gas in Europe shows that it is possible. So long as nat gas stays low it won’t happen, its just too expensive at current prices. But its cool to think that it might be possible someday.

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    • By Fatuous Gasbag on April 18, 2016 at 1:06 pm

      The other major reason for success for natural gas is the fantastically low CAPEX. Combined cycle plants are now going for the low, low price of $800k/MWe. I’m sure there’s a nice O&M contract padding that price on the back end, but there is simply no technology that can compete with that right now. Everything else is $5-7MM/MWe.

      Natural gas has low fuel variability, few emissions to clean up, no ash to dispose of, great plant efficiency (60%), no stream of trucks or rail cars to fuel the plant, etc.

      The only downside is there’s plant water to deal with, but it’s a relatively minor issue compared to all the upsides. And they will stay major upsides until gas goes north of $6/MM Btu.

      Only in the Northeastern US, does anything but natural gas combined cycle look attractive, and that is almost solely due to lack of pipeline capacity.

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  2. By GreenEngineer on April 13, 2016 at 7:13 pm

    Robert, two questions.

    First, do you think this reduction in the coal fleet in the US is permanent? My assumption is that it is – that even when the cost of nat gas (inevitably) goes back up, it won’t trigger a switch back to coal power. A lot of the plants that are shutting down are due for (expensive) upgrades, and there’s going to be a cost just to bring something like that out of mothballs to begin with. Granted that renewables are not the reason that these plants are closing, but they do represent a prevailing wind in the industry, if you will. In that context, it’s hard to see these old beasts coming back to life. Do you agree?

    Second, what do you think about Net Power’s approach to carbon-free power production from natural gas?
    http://www.vox.com/2016/4/5/11347962/net-power
    I’ve not heard of this before, and it’s the first potentially-credible approach to CCS that I’ve seen. Is this an old idea being recycled, like biofuels, or is this something actually new?

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    • By Robert Rapier on April 13, 2016 at 11:16 pm

      Hey there! It’s been a while. Yes, I think coal in the U.S. is done for. It will be a long, slow decline but I really don’t see it coming back from this. If we didn’t have the natural gas then coal might hang in there, but as it stands I think it’s done.

      I hadn’t seen that Net Power story. I am skeptical of their energy balance, but it’s not an approach I have seen before. I think ultimately it’s going to take technologies like this, and I think more importantly technologies that can scrub out CO2 that’s already in the atmosphere. But that’s a tall order. It’s hard to compete with trees there.

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      • By TimC on April 15, 2016 at 3:59 pm

        The EIA’s 2015 AEO forecasts that coal will account for 34% of US electric power generation in 2040. And since total power generation is forecast to increase >20% by 2040, we will probably be burning more coal in 2040 than we are now. So I guess it will be a long, Long, LONG slow decline.

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      • By GreenEngineer on April 19, 2016 at 1:04 pm

        Hi Robert, thanks for the reply. Yeah, I’ve been busy – finally found a job that has me fully engaged.

        If you decide to dig into the Net Power story, I’d be very curious to hear what you think. I agree that their claimed efficiencies seem awfully high, and maybe we just have to see how their pilot plant performs before we’ll know. On the other hand, they seem to have done something that I had not previously considered possible, which is created a system that can extract CO2 from a combustion stream with essentially zero additional energy cost – by cleverly making sure that CO2 and water are their only byproducts! So even if their cycle efficiency is more in line with typical modern plants, their system is probably still a winner if there is a price on carbon, though without such a price the additional capital cost is probably impossible to pay for. (True they have to make a pure O2 stream, but making O2 at industrial scales is easy enough. What I’m not sure about is the energy cost.)

        I agree that at this point we will have to eventually come up with an effective scheme for actively extracting CO2 from the atmosphere, if we are going to maintain civilization on a millennia timescale. For me the goalposts have moved – let’s try to keep ourselves from digging ourselves into an impossible hole over the next 100 years, while trying to maintain the aggregate wealth that would be necessary to enact such a scheme.
        Although I very much doubt that we’re going to come up with a technological solution for CO2 sequestration at scale. As you say, trees are hard to beat and an actively-cultivated topsoil building regimen is even much better than that.
        This is technology that we have now, which we could deploy at any time. If the US really wants a jobs program, we could have tens of thousands of “carbon farmers” working plots of disused land to create, simultaneously, biodiversity reserves, wildlife corridors, and carbon sinks. Think something on the scale of the WPA from the 30′s, except with an orientation towards building up natural capital.
        No magic here, and its something we could do any time we collectively choose to. As usual, political will is the limiting factor. Our current economic system (and cultural/social psychology) strongly favors “silver bullet” technologies that can make a few individual people very rich (or at least, dangles that hope in front of people) rather than approaches that would support lots of people’s livelihoods at a more modest level.

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  3. By Forrest on April 14, 2016 at 7:41 am

    So, China has large reserves of coal and will probably continue to utilize coal as their primary fuel for power production. The U.S. has the benefit, currently, of large reserves of NG that can offset coal power at a competitive cost.

    If one were to step back analyse international power pollution, it becomes apparent that U.S. has glaringly oversimplified environmental solutions. First we can’t lead by example. Other countries only look upon our solutions if they make economic sense for them. Leading by example is a hollow phrase that environmentalist are quite found of. Is Germany leading us the way to wind power? Don’t think so, but nice to watch the show and take notes.

    Given the advantages of low cost coal, it will not be displaced within low budget developing economies. If we accept this, and work within the reality realm, we could affect international emissions more by going down the path of maximizing coal technology. To invent and produce cost effective lower polluting coal power. Increase efficiency will lower pollution. We should be working very hard for these solutions as a way forward to lower emissions. The U.S. should own the coal power economy to put forth the least polluting equipment. This equipment will lesson the environmental impact of coal power and will result in huge benefit to international emissions.

    We can continue on with all the competing sources of power production, just we needn’t bury our head in sand and forget that coal power is the biggest problem that won’t go away. Nuclear, as well should be one of the U.S. top assignments for improvement per cost constraints. We should own the nuclear economy to maximize this power production selection. The renewable power source supplies will continue, at a much slower rate and much lower production. Wind, hydro, and biogas.

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  4. By BonzoDog1 on April 14, 2016 at 10:16 am

    It’s too bad that 1950-2015 EIA graph is not guiding the political debate, where coal’s demise is entirely the result of the EPA. Renewables are trending in the right direction in the graph, as can be expected with an absence of fuel cost, but system reliability is being maintained by more-efficient combined cycle gas turbines replacing baseload coal — and soon nuclear — generating stations that are reaching the end of their lives.
    But environmental groups laying claim to the work of hydraulic fracturing makes about as much common sense as Arch and Peabody executives walking into bankruptcy court for relief after just receiving major bonuses.
    A supply graph of course is no help in assessing end-use efficiency gains that help rein in total demand. Some coal plant shut-downs can be attributed to the public’s adoption of a longer-lasting lght bulb, electric motor and appliance efficiency gains and more efficient use of electric space heating in better buildings. (Several coal plants have also shut because they couldn’t get coal deliveries because rail lines were busy moving tankers filled with Bakken oil.) Power demand for U.S. manufacturing disappeared with the jobs.
    The crunch will come when we’re all driving Teslas and Volts and nighttime excess generating capacity is all used up. There will be a savings in the military costs of oil, and there are indications that the coming generations are less interested in the freedom of the open road than society is today. But any shift of transport into the electricity realm is bound to increase electrcity demand in a monumental fashion.
    I wish I were young enough to see how it all turns out, but that’s not in the cards.

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  5. By Blackbeard on April 15, 2016 at 4:56 am

    Both Hillary and Bernie have promised to kill fracking if elected. In today’s political climate I don’t see either one of them being able to back away from those promises even if they wanted to.

    What then?

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  6. By Russ Finley on April 17, 2016 at 10:23 pm

    They also claim that renewable energy is closing nuclear. This has a grain of truth in that subsidized wind can make natural gas powerplants more profitable by reducing their gas bills when the wind blows. Which is fine, but if you take out a low carbon source with another low carbon source, I’d hardly call that progress.

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    • By BonzoDog1 on April 21, 2016 at 12:08 pm

      Renewables as they exist today are displacing — not replacing — more expensive baseload coal and nuclear, with gas turbines picking up the slack with their quick start-up times.
      Matching production to power demand is much like the move to just-in-time inventory, which manufacturing moved to adopt decades ago to reduce costs.

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      • By Russ Finley on April 21, 2016 at 12:55 pm

        Baseload is the level of power that a given area never drops below. Because it does not vary, you don’t need gas turbines to provide it, although, if cheap enough, you can use gas turbines to provide it. Baseload can get in the way of non-dispatchable sources like wind and solar if you have enough of it on the grid because when solar and wind hit some maximum output on a given day, you can’t turn down the baseload and will instead of have to either export or truncate the non-dispatchable. That is why using gas for baseload would allow you to truncate baseload when non-dispatchables punch into it.

        One downside is that gas is a fossil fuel. Using it for baseload instead of nuclear won’t stop climate change. That’s why most studies include nuclear in a low carbon energy mix.

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