Country turning to natural gas for the long haul

Like what you see? Tell a colleague

Wednesday, 29 August 2012 07:33

August 29, 2012

Many American policymakers have imagined the recent shale gas boom as the key to the country's energy independence, taking advantage of the U.S.' massive natural gas reserves to limit reliance on regions like the Middle East. That dream took a blow early this year though, with natural gas prices plummeting to their lowest level in around a decade, bottoming out below $2 per thousand cubic feet.

Despite this setback for the country's oil and gas companies, however, a new report from Moody's Investors Service suggests that the country could have a major new market for its natural gas for the long term.

Sticking with natural gas

Bloomberg notes that many coal-burning power plants chose to convert their generators to run on natural gas over the past year. These decisions were spurred in part by the quickly falling price, but also by a number of new rules from the U.S. Environmental Protection Agency restricting emissions from power plants.

Some imagined that this trend could reverse in coming years as natural gas prices stabilize and coal continues to decline with lower demand. However, a recent analysis from Moody's vice president and senior analyst Anna Zubets-Anderson found that most of these transitions are most likely permanent.

"Coal will regain a bit of market share as natural gas prices recover somewhat, but most coal-to-gas substitution to date will be permanent," wrote Zubets-Anderson.

One of the new emissions rules was thrown out by a federal appeals court, which argued that the EPA failed to properly consider the economic impact of its regulations, but businesses still seem to see writing on the wall for the emissions-heavy coal.

Natural gas winning where it matters

In April this year, natural gas generation managed to match coal's contributions for the first time in U.S. history, according to the U.S. Energy Information Administration, but in general coal still holds an edge in power production. And the EIA's Short-Term Energy Outlook predicts that coal will hold the top spot by a wide margin for the next two years.

However, coal's share of generation is expected to fall significantly in coming coming years, falling from 42.2 percent last year - and nearly half in 2005 - to 37.3 percent this year. According to the EIA, the country is expected to see anywhere between 30 and 70 gigawatts of coal plants retire over the next eight years, as new emissions rules come into effect and old, inefficient plants are simply phased out.

At the same time, the EIA reports that the U.S. added only a single 800-megawatt coal-burning power plant through the first half of 2012, compared to more than four dozen natural gas plants. Even solar and other renewables challenged the additions to coal capacity.

Boon for emissions

The shift to natural gas-fired generation has already had a major impact on the country's carbon emissions, which fell to their lowest level in two decades thanks largely to growing use of shale gas, EIA data show.

However, a new report from the Department of Energy also points out that natural gas is primarily contributing to carbon emissions at the consumption end rather than during production as many people have feared. With gas engineering research helping to develop increasingly efficient natural gas generators and drilling methods, the fuel could prove to be a relatively inexpensive means of dramatically reducing the country's carbon emissions in the near term.

At the very least, gas is helping to cut the country's reliance on much more carbon-intensive coal.

< Prev		Next >