Friday, September 11, 2009

Electric Generation: Gas vs. Coal

There was a great Reuters article this week about electrical generation and the slow shift from coal to natural gas. The article summarized the big picture and focused as much on the long range as the current situation. The author's bottom line: the long-term prospects for coal are diminishing. This will happen quicker if there is an economic cost applied for carbon output.

A key issue for a transition from coal to natgas is supply stability, and electric companies are starting to get comfortable that the supply of gas will be sustainable going forward. One of the positives of coal is the relative stability of supply and price. Between big shale finds and the infrastructure to import LNG, natgas supply will become greater and more sustainable. Additionally, as new gas fields are explored and pipeline and storage infrastructure is constructed, the aggregate gas storage capacity will increase, helping offset issues of peak demand.

Coal still costs less than natgas, around $2.24/MMBtu for coal vs. $3.83 for gas in the second quarter of 2009, but one analyst calculates that coal's share of the electrical generation market has dropped from 49% to 45% this year. He noted that for the last twelve months through June 2009, coal-fired generation fell 12.7%, while gas-fired generation fell 0.3%. This year's statistics might be an anomaly, but I think it is indicative of a long-term trend.

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