It takes time for natural gas to replace coal to generate electricity

The coal is dirty and heavy, difficult to transport, and seriously pollutes the environment. This is largely why the Obama administration will propose new regulations that require coal-fired power plants to install expensive scrubbers, catalytic converters, and other equipment to reduce nitrogen dioxide and emissions.

Proponents of this policy say that increasing the cost of generating electricity from coal will encourage power companies to seek cleaner energy alternatives. The combination of deep horizontal well drilling and hydraulic fracturing technology has enabled the development of huge reserves of shale gas, which will stimulate the rise of gas-fired power plants. Experts believe that as resources such as the Barnett Shale suddenly become available for development, this provides North America with 100 years of energy at the current level of electricity consumption.

Is coal dead? A recent econometric study shows that this is not the case. The study concluded that no more than 20% of the existing coal-fired power plants may be diverted to gas, even though the US Environmental Protection Agency has caused the cost of coal to increase, and natural gas prices remain in place indefinitely. The low price. Since 2008, the price of natural gas has fallen by more than 50%, while the production of electricity that has been steadily increasing for decades is still about 1 billion tons per year. After examining the “cross-elasticity” of gas to coal—the rate at which electricity suppliers are transformed from one fuel to another by the effects of changes in relative prices of different fuel prices—the researchers stated:

"There is no evidence that natural gas is beginning to dominate and that coal is being squeezed out of the energy generation market. Within the next five to ten years - a meaningful period for corporate investors and federal pollution control policies - what may happen is that Shale gas will replace 20% of electric coal. This is not exactly the same exaggeration that shale gas is the most important new energy source in the United States this century."

Participating in this research is an organization affiliated to Yale University, which is composed of activists in the energy field: Edward Hirs, financial analyst and economics instructor at the University of Houston; Robert Ames, Thai Tyson Foods is a renewable energy manager; Anthony Corridore is from the Lafarge Group; and Paul MacAvoy is a retired Yale University professor of economics.

They admitted to being confused about why the conversion rate is so low. Natural gas is obviously a better fuel. Although it is more expensive as a heat energy source - at present, for every 1 million Btu (British thermal unit, 1 Btu is equal to 1.06 kilojoules) requires 4 US dollars of natural gas, and coal is 2.5 US dollars - but gas does not require an area Huge warehouses can be easily transported through pipelines. If the historical law of energy economics applies here, that is, production is proportional to the ratio of 1:10, then if reserves triple, from 200tcf to 800tcf, natural gas production will increase from 20tcf. 80tcf.

The authors concluded that this will not happen for many reasons. First, in order to transport an additional 10 tcf of natural gas to a power plant, the pipeline needs to be widened by a third. When natural gas prices fall relative to coal prices, there is no economic evidence that there will be large-scale fuel change. A survey conducted by the US Energy Information Administration (EIA), the World Bank, and the University of Calgary from 1973 to 2007 showed that the cross-elasticity coefficient of coal to gas is only 0.6%, that is, the price of natural gas is Relative to coal prices, a drop of 10%, gas power generation rose by only 0.6%.

Since 2008, the price of natural gas has dropped by 50%, resulting in an increase in gas power generation by more than 3%. The cross-elasticity coefficient obtained by using another econometric model is about 0.2%, that is, every 10% drop in relative price, gas usage increases by 2%. Both results puzzled the researchers, considering the ease of transporting and storing gas relative to coal, they expected this change to be even greater. These studies show the “limited possibility of replacing one energy source with another,” although they predict that future capabilities will be limited because there have been no incidents similar to the discovery of giant shale gas reservoirs in recent years.

Other studies have shown that the price of gas is permanently reduced by 50% and the overall conversion rate of fuel for electricity generation does not exceed 10%. For those who are optimistic about natural gas, the hope is still there. A report from Credit Suisse in 2010 showed that in order to meet the US Environmental Protection Agency's 2015 standards, 15 percent of the 34 million megawatts of coal-fired electricity generated in the United States, that is, 5 million megawatts of power plants will Had to be closed.

In addition, a plant with a total capacity of 10 million megawatts will need large-scale investment in the construction of technologies such as scrubbers to achieve emission reductions. But this expenditure is not mandatory, because the power plant can avoid these expenses as long as the fuel is converted to natural gas. The most prone to conversion is the long-term cost of coal plus the cost of capital investment is more than 5 US dollars per million cubic feet of gas - the long-term gas costs plus the estimated cost of new gas-fired power plants.

Hess et al. concluded that the most likely to be abandoned is the 60,000 MW or 72,000 MW power plants that have been put into production for more than 40 years and have been completely depreciated. The question is whether the US EPA will postpone political pressure. Execute or abandon stricter emission regulations. If this happens, "the amount of 1 billion tons of coal used annually in the power generation industry will actually remain unchanged."

And if the result is the opposite, Credit Suisse estimates that if the industry shuts down all small or old power plants, the boiler coal demand will be reduced by 15% to 30%, ie 334 million tons per year, and the gas demand will increase by 8%. 16%, that is, an increase of 3 trillion cubic feet per year. In addition, if electricity demand increases by 1.5% annually, gas consumption will increase by 2.5tcf per year.

All in all, the authors of the study criticized the nerds who formulated energy policies for failing to put new GE gas turbines and business plans on the agenda, allowing greater use of natural gas, breaking the limits of peak power generation, and expanding to Basic load power generation. I can provide reasons: During a recent visit to the General Electric manufacturing plant, managers proudly told reporters that their steam turbine plant in Greenville, SC had all exported overseas this year. . From this point of view, shale gas ** will take time.