Tuesday, November 30, 2010

New York Times on Gas Replacing Coal

An article in the New York Times paints a compelling picture of the shifting landscape for utilities as natural gas slowly begins replacing coal as the prudent choice for power generation.  With the death of carbon legislation, this shift will happen more slowly, but it will happen.  Coal won't go away, but it gradually will lose market share.

While people wag on in different directions about the impact of carbon on the climate, the unavoidable fact is that burning coal emits other dangerous pollutants such as mercury, sulfur dioxide, nitrogen oxide and particulate pollutants.  There are scubbers that can reduce (not eliminate) the impact of these pollutants, but retrofits are expensive. especially when a large portion of the coal power infrastructure is as old as it is.

The article cites a Credit Suisse analyst who says that more than two-thirds of the country's coal plant fleet is older than 30 years and approximately one-third is older than 40 years.  Around one-third of the U.S. coal generating fleet has no emission controls at all, while another third lacks equipment to reduce sulfur dioxide or nitrogen oxides.  While retrofitting an old plant may be cheaper than building a new gas-fired plant, utilities have to ask if it is worth investing in such old infrastructure.

I can certainly sympathize with the plight of utilities.  New power plants are huge investments and are expected to have 30+ year lifespans.  These are not light decisions.  The volatility of natural gas prices has long been the industry's worst enemy.  With the advent of shale, prices have become more steady, although most recognize that current prices are unsustainability low.  But when you are making 30 year decisions, you would prefer more than two years of data points on prices.

I expect to see gas eat away at coal's market share in power generation, but the impact likely won't be felt for at least another five or ten years.  Ultimately, though, the increased use of natural gas in power generation will be a major driver of gas consumption.  It will also help lead to lower pollution and lower carbon dioxide emissions.  That's a win-win in my book. Too bad it can't happen sooner.

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