Coal Returning as Energy Source of Choice

The amount of energy produced from coal has taken a downturn in recent years due to cheap natural gas and strict environmental regulations, but high demand for natural gas in the face of an especially frigid winter has caused a rise in prices, and coal has been making a return as the energy source of choice.

The economics of coal are changing, with demand increasing, especially for the cleaner, lower-sulfur coal from Wyoming and Montana. Natural gas prices are at their highest level in four years, so coal is starting to look good to utilities again.

Despite the downturn in coal-produced energy in recent years, it is still the largest fuel source for power plants in the United States. Coal produces 40 percent of U.S. power. The amount of energy produced by natural gas has fallen from 30 percent to 28 percent, and experts expect the trend to continue in 2014.

Electric companies are using coal to generate more than 4.5 million megawatt hours per day, the highest level since 2011.

With air conditioning season coming, coal is becoming even more attractive. The Energy Information Administration (EIA) projects that the cost of natural gas will rise to an average of $4.44 per million Btu in 2014, compared to coal at an average of only $2.36.

Coal was even more dominant less than a decade ago, producing half of U.S. electricity. Cheap natural gas changed all that. The hydraulic fracturing (fracking) boom made natural gas the cleaner and cheaper substitute for coal over the last few years. About a quarter of active coal mines were shut down. Coal production dropped and company stocks plunged.

An unusually cold winter this year, however, has created high demand for natural gas and prices have risen 24 percent over the last six months. Utilization of coal plants has increased to the point that many have used up their available reserves, and are now considering importing coal to meet the demand.

Many utilities still have big investments in coal. Old coal plants that were retired are being brought back

on-line, as coal is making a return in many areas as the first choice for energy production. There have been some difficulties with making the change to power predominantly produced by natural gas. Switching coal-fired plants to natural gas would be more expensive than most utilities can afford. And a pipeline shortage already causes problems getting natural gas and oil to markets and power plants. If coal plants were to convert to gas they would have no way to get the plants connected to a fuel source. The current bottleneck of pipeline projects in the country could make this a long-term issue.

The Environmental Protection Agency (EPA) considers the largest concentrated source of greenhouse gas emissions in the country to be power plants. Increased use of coal means U.S. carbon emissions can be expected to rise this year after reductions in 2011 and 2012.

Environmental regulations have been causing utilities to avoid coal, but some of the worst regulations, which will likely cause dozens of coal-fired power plants to close over next few years, have not yet taken effect. The Mercury and Air Toxics Standards places federal limits on power plants emissions of toxic pollution, but is not expected to take effect until 2015. The Cross-State Air Pollution Rule, which says that up wind states must control pollution drifting to other states, is facing legal challenges. Although the new rules are still in the comment stage, they have effectively halted plans for new coal plants despite the current increase in demand. The Associated Press speculates that EPA rules alone could kill off about 8 percent of the nation’s coal fleet.

Coal’s rebound may be only temporary. But until demand outstrips supply and natural gas prices come down, coal will likely continue to enjoy its return as the energy source of choice.

By Beth A. Balen

Sources:
Forbes
Oilprice.com
CNBC