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Tuesday, August 21, 2012

Natural Gas v. Coal

According to data from the Energy Information Administration (EIA), natural gas accounted for 28.7 percent of total generation during the first quarter of 2012, compared with 20.7 percent during the same quarter last year. In contrast, coal's portion of total generation declined from 44.6 percent to 36.0 percent over the same period. Even more drastic numbers can be seen when comparing the amount of gas generation in March 2012 to March of last year. According to the EIA, U.S. power plants increased natural gas use by 40 percent this March compared to a year earlier – from 503.9 billion cubic feet (Bcf) in March 2011 to 703.5 Bcf in March of this year.

As natural gas prices have reached startling lows this year, gas has taken a sizeable amount of U.S. electric power generation from coal. Many utilities being forced to retrofit or retire coal-fired facilities to comply with the Mercury and Air Toxics Standard and Cross State Air Pollution Rule (struck down by court) are finding solutions in revamping their plants as partial gas-burning facilities. Additionally, natural gas facilities constructed in the early 2000s that have been operated as peakers in the past are now being called upon to run at significantly higher rates.

With regulations targeting not only the traditional emissions such as sulfur dioxide and nitrogen oxide, but also new challenges like mercury and carbon capture, coal is not a cheap option for the time being. A number of new facilities that were formerly proposed as coal plants have switched to full natural gas or combined cycle over the last few years. One of the few remaining proposed coal plants, the Taylorville Energy Center, is likely to switch to gas.

The continued development of natural gas shale resources and an exceptionally warm winter have contributed to an overabundance of natural gas. The average spot price for natural gas in April 2012 was less than $2 per mmBtu, and prices may remain relatively low for a while.  Gas prices in the U.S. could double in the next three years due to the gas demand as coal is replaced for gas in electricity.  For the short-term, gas will likely stay far below $5.  (Power Engineering, 7/12/2012)

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