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Frack Baby Frack
This Is the Year Shale Gas Knocks Out US Coal

2016 is shaping up to be a year for the record books: the Energy Information Administration is anticipating that this year, for the first time ever, natural gas will displace coal as America’s largest source of electricity generation. The EIA reports:

For decades, coal has been the dominant energy source for generating electricity in the United States. EIA’s Short-Term Energy Outlook (STEO) is now forecasting that 2016 will be the first year that natural gas-fired generation exceeds coal generation in the United States on an annual basis. Natural gas generation first surpassed coal generation on a monthly basis in April 2015, and the generation shares for coal and natural gas were nearly identical in 2015, each providing about one-third of all electricity generation.

…The recent decline in the generation share of coal, and the concurrent rise in the share of natural gas, was mainly a market-driven response to lower natural gas prices that have made natural gas generation more economically attractive. Between 2000 and 2008, coal was significantly less expensive than natural gas, and coal supplied about 50% of total U.S. generation. However, beginning in 2009, the gap between coal and natural gas prices narrowed, as large amounts of natural gas produced from shale formations changed the balance between supply and demand in U.S. natural gas markets.

Natural gas emits just half as much greenhouse gases as coal, and far fewer of the dangerous local pollutants that can lead to the sorts of toxic smog choking China’s megacities. The fact, then, that natural gas is increasing its market share at the expense of coal is a green triumph.

It’s especially noteworthy because it’s being driven by market forces, not lavish government subsidies. The shale revolution has created a domestic glut of natural gas here in the U.S., and that’s helped depress spot prices here well below $2 per million Btu (among the cheapest prices in the world). Fracking is dethroning Old King Coal, and that controversial drilling practice deserves more credit for the environmental good it’s doing.

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  • Andrew Allison

    As you posit, it is especially noteworthy the the one alternative energy success story is subsidy-free. Don’t expect the Administration or the Greens to acknowledge the fact.

    • rheddles

      Natural gas got a big subsidy from the Obama/Clinton War on Coal. This probably would not have happened this quickly had not power plants been forced to convert outside the free market.

      • Andrew Allison

        Obama is an equal-opportunity opponent of fossil fuel development and use. The post suggests that generation is shifting from coal to NatGas because (including the ancillary benefit of no scrubbing) it costs less. Meanwhile, I’ve seen no discussion of the substitution of NatGas for nuclear power, the former number two source. As TAI frequently reminds us, nuclear power has zero emissions. However, as electrical generation gets cheaper, nuclear becomes an ever-less financially attractive alternative.

  • SLEcoman

    While there were no government direct subsidies, the Obama administration provided indirect subsidies by promulgating the Mercury Air Toxics Standard (MATS), even though, by the EPA’s own admission, the mandated reduction of mercury emissions will provide no measurable health benefit. The science behind this regulation is even worse than the EPA admits ( )

    The other fantasy that is being promoted here is that a $2.00/MMBtu natural gas price is sustainable. Saying that $2.00/MMBtu is sustainable is to say that the oil and natural gas industry can, and will, continue to drill for natural gas at $12/boe (barrel oil equivalent). Does anybody seriously believe that is true? The oil and natural gas industry doesn’t. It is important to member that prices for commodities are established by the marginal cost of the last producer (excluding cartels such as OPEC). It is very hard to see how current US natural gas production levels, much less increased production levels, can occur without Haynesville area natural gas. This area needs a price of $3.40/MMBtu ($20.40/boe) to be profitable.

    I would also point out that the EIA has admitted that it really cannot make accurate long-term natural gas price forecasts. In 2014, it developed five different scenarios for future natural gas prices that varied from $2.00/MMBtu ($12/boe) to $10.00/MMBtu ($60/boe). The mid-point forecast was $6.00/MMBtu ($36/boe).

    In case anyone is wondering if an increase in natural gas prices from $2.00/MMBtu to $3.40/MMBtu will significantly impact the power generation mix, one just has to look at the US power generation in December 2015 and January 2016. In December, the average Henry Hub (most accepted US natural gas pricing point) was $1.93/MMBtu; the average price increased to $2.28/MMBtu in January. The market share for natural gas-fueled power generation dropped from 33.8% in December to 30.2% in January while the coal-fueled market share increased from 27.6% in December to 34.5% in January. (data source: Dec = EIA Electric Power Monthly; Jan = EIA STEO). In February 2014, natural gas spiked to an average of $6.00/MMBtu due to very cold weather; US power market share: coal = 44.3% & natural gas = 23.3%.

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