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By Paolo von Schirach
March 28, 2012
WASHINGTON – The US Environmental Agency, (EPA), just proposed new emission regulations that would forbid construction of future power generation plants producing more than 1000 pounds of carbon dioxide per megawatt hour. According to all the analysts, if enacted, this provision would essentially rule out new coal fired plants in America. For a coal industry that employs 86,000 people, while supplying the fuel that generates 40% of all US electricity, this proposed rule means the end of the road. No more growth. While this stringent regulation would not apply to existing coal fired plants or to those already authorized and about to be built, after these, for all practical purposes, no more.
Carbon capture is too expensive
Sure enough, if equipped with state of the art carbon capture technologies, coal fired electrical generation plants could meet the new emission standards. But the costs for this equipment are still too high, and it would be next to impossible to recover them within a reasonable time.
These new stringent regulations would be a tremendous blow for the US coal mining industry. Of course, it would still be possible to export coal. Both China and India would be great customers for US coal. But the coal industry would have to resolve severe logistical constraints in order to make it easy and economical to send their coal to ports equipped with coal handling facilities.
Coal doomed even without EPA regulations
That said, whatever the EPA wants to do, coal was doomed anyway. And this is due to the spectacular natural gas revolution now underway in America. Due to “hydrofracking” and horizontal drilling that allow getting natural gas from shale formations, all projections about US natural gas production and prices made just a few years ago are out the window. America has more natural gas than Russia due to the second largest shale gas deposits in the world. This revolution came so fast that it took everybody by surprise.
Recent projections about gas production decline totally wrong
Consider this analysis prepared in April 2008, a mere 4 years ago, for the Department of Energy. Right at the start it stated that: “[US] natural gas prices continue their recent upward trend. High natural gas prices hurt all natural gas consumers, especially household and natural gas intensive industries…Domestic production is projected to decline steadily…”
Amazingly wrong! Only 4 years ago experts were projecting production decline, and now we are in the midst of a historic natural gas revolution, with reserves estimated to last at least 100 years. And here is why coal is doomed. As a result of new supplies, natural gas prices have collapsed. From almost $ 9 per million BTU in 2008, (the time of the study cited above), they are down to $ 2.20 per million BTU just now. Adjusted for inflation this is the lowest price since 1995, almost 17 years ago. Now the US enjoy by far the lowest natural gas prices in the entire developed world.
Price swings?
In the most disingenuous way, the coal industry people and all their Senators and Congressmen supporting them, claim that historically US natural gas prices have had huge swings, and so today’s low prices will be followed by another rise that will hurt all those who switched to gas. So, better stick with old, reliable coal. While it is true that there used to be natural gas price swings in the past, the difference between then and now is this incredible new supply. There is so much new gas now that many energy companies had to suspend operations in order to prevent a further price collapse.
Natural gas cheaper and much cleaner than coal
With full sympathy for the US coal industry now facing inevitable decline, this incredible abundance of a much cleaner domestic fossil fuel is cause for celebration. Given the low cost of natural gas, even if the EPA had done nothing regarding regulating emissions for future power generation plants, in this totally new energy scenario it would be hard to make an economic case for more coal fired electrical generation plants in America. US natural gas is cheap and destined to stay cheap.