Natural Gas And The Brutal Dethroning Of King Coal

Wolf Richter's picture

Wolf Richter

It’s been tough for natural gas drillers. The boom in horizontal drilling and hydraulic fracturing that gave access to enormous gas-rich shale formations around the nation led to record production. Prices crashed. Drilling activity collapsed: rig count, down 45% from last year, hit the lowest level since July 1999. Producers are writing down their natural gas assets by the billions of dollars. Some will get wiped out. The price of natural gas has been below production costs for years, and the damage is now huge [read.... Natural Gas: Where Endless Money Went to Die].

On the other side, power generators have switched from coal to natural gas—with devastating impact on king coal. Coal has long been the dominant fuel for power generation. But April 2012, for the first time in the history of EIA data, power generation from coal-fired and natural gas-fired plants reached parity, each contributing 32% to total electricity generation.

The large fluctuations are a function, in part, of the seasonality of overall power demand. In April, demand was low due to mild spring weather. The price of natural gas dropped to a 10-year low, and power companies laughed all the way to the bank. In May, power production started to rise as air conditioners got cranked up—a trend that will hold for the summer.

But the graph shows something far more important: a narrowing of the gap between coal and gas-fired power generation. It’s not just the low price of natural gas that did it—but a new power generation technology and yes, the usual suspect, Congress.

Gas turbines are an old technology. Most of the energy is wasted as exhaust heat. They’re inefficient, compared to coal-fired steam turbines. But they have an advantage: they can be brought on line quickly to cover peak loads. So coal and gas have been used in parallel: coal to produce low-cost base power and gas to produce more expensive peak power during periods of high demand (daytime, summer).

Gas didn't pose a threat to king coal ... until the arrival in the 1990s of the natural gas combined-cycle (NGCC) turbine: like the classic turbine, it drives a generator, but instead of blowing the “waste” heat out the exhaust, it uses the energy to generate steam that, as in a coal plant, drives a steam turbine that powers another generator. Like their old-fashioned brethren, NGCC plants can be brought on line quickly, but when used for base power, their efficiency can exceed 60%—much higher than that of a coal plant.

A game changer. With natural gas prices as low as they’ve been over the past years, operating costs for power generators have plunged. It doesn’t hurt that NGCC plants have lower capital costs than coal plants—$600 to $700 per kW versus $1,400 to $2,000 kW—relatively short construction times, and environmental benefits. The long-term shift to natural gas looks like this:

 (The data is annual, not monthly; so 2012, with data through April, isn’t comparable to the first graph.)

The gray areas in the graph indicate periods of extraordinary changes. Low oil prices in the 1960s caused and uptick in use of petroleum for power generation ... until the two oil shocks in the 1970s knocked it into a long decline towards the inconsequential.

The winner of the oil shocks was coal, producing at its peak in the late 1980s nearly 80% of all power: truly king coal. And it was Congress that did it! In 1978, in reaction to the oil price shocks, it passed the Powerplant and Industrial Fuels Act (PIFUA) that clamped down on the construction of oil and gas-fired plants and promoted the construction of coal plants. But by 1990, a new world had dawned: PIFUA was buried, natural gas markets were deregulated, and power generators were freer to substitute one fuel for another, based on economic considerations.

Just then, the efficient NGCC plants arrived on the scene! Result: a phenomenal ascent of natural gas in power generation, not only for peak power but also for base power, led by a construction boom of NGCC plants. Between 2000 and 2010, natural gas generating capacity jumped by 96%:

The loser was coal. An ugly slide that accelerated over the last few years. Higher natural gas prices—a certainty, given that they’re currently below production costs—will have some impact on the speed of the progression of natural gas. In the short term, power generators switch between fuels to take advantage of lower costs here and there. But as more gas-fired plants have come on line, and as the oldest, most inefficient coal plants are being retired, the shift to natural gas has become structural—pushing up demand inexorably.

Alas, the price of natural gas doesn’t flow like a tranquil river but has violent ups and downs with sporadic and vicious spikes. Read.... The Coming Spike In The Price Of Natural Gas.

And here is a harbinger of other things to come: California Sales Tax Revenues Nosedive By 33.5%, by hard-hitting Chriss Street.

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THE DORK OF CORK's picture

The UK situation is completly different.

A ending of the post 1990 dash for gas policey is in sight - which was tied in with the lower capital costs of Nat Gas electricity when the criminal privatisation policey went into high gear...producing false profits for 20 years until depletion took its course.

You can see some dramatic changes in the first quarter electricity generation by fuel Type.

Demand destruction is manifesting itself in the UK electricity figures.
First quarter fell 3.4% at 99.5Twh vs 103.1 Twh (this puts the hyped onshore wind contribution of 3.4Twh is some perspective despite much winder conditions when compared to the anticyclone cold winter of Y2010)

This is the lowest first quarter electricity consumption figures since 1998.

There has also been a dramatic shift to coal vs Gas because of high Gas prices.
Coals electricity contribution
Y2010 Q1 : 32.63 TwH
Y2011 Q1 : 35.13 TwH
Y2012 Q1 : 42.05 TwH

Gas electricity contribution
Y2010 Q1 : 48.24 TwH
Y2011 Q1 : 38.34 TwH
Y2012 Q1 : 26.68 TwH

So much for that carbon thingy.

Nuclear despite its lack of investment for decades continues to beat the wind stuff and its erratic supply.
Y2010 Q1 :18.18 TwH
Y2011 Q1 :19.45 TwH
Y2012 Q1 :17.20 TwH

Wind (total offshore & on)
Y2010 Q1 : 2.45 TwH
Y2011 Q1 : 3.36 TwH
Y2012 Q1 : 5.22 TwH…….. the increase is because of the variable North Atlantic Jetstream adding TwHs more then anything else in my opinion)

Me thinks we have a deeply irrational domestic energy / transport policey driven by a rent seeking utility industry.

Widowmaker's picture

Smart money has been building a position in natty gas for the last two years.

2013 dual fuel vehicles  (petro and CNG) hitting soon with the ability to pump gas from the home supply to the tank in the driveway.  Other vehicle conversion costs $5k, spot check on CNG fuel is $1.54.   250 mile range on CNG with 8 gal petro backup.

Power generation, both localized and industrial about to boom.

You read it here first, ZH.

Easy money.

(...and coal ain't going anywhere)

Lost Wages's picture

I guess the coal industry should have been working on alternative products like Soy Coal. (I made it up just now.)

Catullus's picture

The loser was anyone who built the gas plants in the early part of last decade.  Nearly all of the merchant gen companies that did that went bankrupt or were purchased. 

$3 gas means every critical coal plant in MISO and PJM can run profitably. 

ebworthen's picture

If the Natural Gas push gets going, the price could quadruple quickly.

What I don't understand is the talk of turning truck and car fleets from oil to nat gas.

Ummm...o.k., so if more and more trucks and cars want nat gas instead of oil what will happen to the price?

How expensive will it be to heat your home and to generate electricity?

klapper's picture

Good article but.....

Here are September future's for Powder River Basin coal (fob Ohio River Barge Terminal) vs Henry Hub NatGas (fob Louisiana), converted to $US/GJ:

PRB Coal = $0.46/GJ (approximate)

NG = $2.65/GJ

Assuming 35% efficiency for a coal plant and 60% efficiency for NGCC plant, cost per Mwh generated electricity is:

PRB Coal = $4.74 energy cost per MWH

NG = $15.92 energy cost per MWH

Coal plants have higher non-energy operating costs and higher capital cost but the energy component for a power plant using NG is 3.4 times higher than one using PRB Coal at todays prices. As noted in the article the expectation is for gas prices to go higher, plus coal has a much more stable price environment. At $7/GJ NG, Illinois/Appalachian coals are about 1/2 the energy cost of NG per generated MWH, and PRB coal is 1/9 the energy cost of NG/MWH. Did I mention the coal/carbon molten carbonate fuel cell (80+% efficient at electricity generation)? I wouldn't dance on coals grave just yet.


supermaxedout's picture

Wolf you should focus more to Germany when it comes to the future of energy. They are shutting down all their nuclear power plants and are now looking at the energy and environment problems from all sides.  Frau Dr. Merkel as former Environment minister is personally behind this giant project. The Germans are throwing now a lot of money on reasearch to become more  energy independent. Price of fossile fuels is way to high already and supply is often not reliable due to political crisis.    That makes production of synthetic fuel (NG and diesel) out of renewable energy (wind power, solar power) a commercial alternative on the medium term ( 5 - 10 years).  The idea is to store electric power from renewable sources (wind, solar) in the form of synthetic liquid fuels ( diesel) or NG.  They are working on a big pilot plant already which costs them appx 30 million euros to build.  Sounds to me better invested money than traveling to the mars.

onthesquare's picture

Coal is still being used by the Chinese and they are now using it as a base stock for plastics, fertilizer and making diesel.  Technology seems to be saving us but that is no excuse not to change our ways.  Coal, natural gas, petroleum will never die but may lay down and rest for a while.

I use propane, which is tied to NG, and it was the lowest I have ever seen last fill.  I know the correction and punishment is coming.

dunce's picture

Coal has other uses besides power plant fuel and the free market should be calling the shots not some dope smoking EPA bureaucrats. Natural gas was going to displace coal anyway after fracture recovery methods were developed. All those coal plants were that are closing were not at the real end of their economic life except for outrageous expensive regulation that only harmed our country because China and India are building new coal plants as fast as they can  putting out more emmissions than us by a multiple of what we are eliminating locally. Check a weather map and you will see much atmospheric pollution spreads over the entire world. In certain areas where the soil is alkaline, acid rain is beneficial.

Sun and Moon's picture

Why does NG generation seem to peak on a two year cycle while coal generation has a yearly peak?

Gringo Viejo's picture

If Romney looks strong within a few days of the election, I'm buying ANR with both hands.

rustymason's picture

Fun Fact: The waste heat from NG turbines in refineries is captured and used to heat fluids during crude processing. 

Flakmeister's picture

As for King Coal...

Good Bye and good riddance....

Element's picture


Dude, total coal use is going up, not down, it's just that NAT GAS use is rising faster than before and slowly becoming a bigger fraction of an ever-larger energy resource mix.

I've told you this before but you don't seem to want to face it, coal use is going to keep rising for the rest of this century, it will not go down.

We'll just be using more of all other energy sources, as well.

I have no idea why you imagine coal use is going to, nor could go into a decline, any time soon, as there's zero indication that's going to occur, but a whole lot that suggests the opposite.

You'll have to come to terms with that reality at some point, because you're hanging-out in Fantasia-Land at the moment.

literarybeer's picture

ya coals done huh......cmon dude dont be so simple 

Seize Mars's picture

...except that there are no fossils in fossil fuel. It's not "organic," it's a geological thing. Sorry, but there's plenty of it. There is no peak anything, other than peak government.

rustymason's picture

Are you talking about the ambiotic oil theory? Even if that theory were true, it wouldn't matter. We pump oil out much, much faster than it is (supposedly) replenished.

Seize Mars's picture

So oil is really really scarce, and hence I should pay a really really lot of Federal Reserve Notes for it.


Flakmeister's picture

We heard you the first time...

BTW, its abiotic....

rustymason's picture

Are you talking about the ambiotic oil theory? Even if that theory were true, it wouldn't matter. We pump oil out much, much faster than it is (supposedly) replenished.

kaiserhoff's picture

Still controversial for coal and oil, but not for methane.  It bubbles up around every coast, even in Scandinavia where the bedrock was scraped clean by the last glaciation. 

Are there still doubters?  Most of Neptune's atmosphere is methane..., but maybe those are just leftover dinosaur farts that Ben and Timmy haven't got around to sniffing yet;)

Flakmeister's picture

Would you like to discuss the ratios of C13 to C12? Or did you think all carbon was equal???

gmrpeabody's picture

Apparently, some carbons are more equal than others...

Flakmeister's picture

Apparently some people are unaware that plant uptake of C12, C13 and C14 differs...

And since C14 has a half-life of about 6000 yrs (IIRC) you don't find much of it in fossil fuels

You know, that science thingie aka the left-wing conspiracy....

Manthong's picture

Interesting point.. no dinosaurs on Jupiter, Unanus or Saturn either.

You never know..  I’m no expert in geology, but everything else I see suggests that if indeed abiotic oil existed it would be only natural for the government to aggressively suppress it in order to keep their fiat scam and fundamental collectivist transformation going.

Somebody find an answer to this little issue....

kaiserhoff's picture

I've read Gold's book.  A little dated, but fascinating.  Lot's of conflicting theories on oil, but coal should attract some real interest.  It's essentially pure carbon.  There are fossils in coal, but that adds to the mystery.  The layering in coal is incredibly uniform, supporting Gold's theory that it accumulated one molecule at a time, from hydrocarbons below.

Flakmeister's picture

I would say that the fossils that have been found in coal seams pretty much seals the deal, n'est ce pas?

Element's picture


Not to mention that hydrocarbons almost always occur solely in sedimentary stratigraphic deposits, as you'd expect if hydrocarbon deposits formed from the remnants of bio-degrading processes and diagenetic pressure/temp 'cooking'.

I do know of Russian geologists who have proposed abiotic hydrocarbons, but I think these guys are obviously completely wrong about that, as the geological field-relations are overwhelmingly clear that these were from biological detritus laid down within sediments in anoxic deposition conditions.

Abiotic hydrocarbons is clearly just a hopey theoretical delusion that's unsupported by the full spread of geological facts.


Flakmeister's picture

Me thinks you are reading too much into "fossil"....

Didcha think that maybe they are called "fossil" fuels is that they represent organic material from a long time ago???

maximin thrax's picture

A fossil has always meant the typical calcium carbonate replacement of the organic tissue. It has never meant the organic remains, outside of the term "fossil fuels," which is a misnomer.

Element's picture

A fossil is calcium or silica replacement, atom by atom of the original biological material.

'Fossil fuels' has become just a meaningless propaganda label, that was seized-upon by ignorant radical greenies in order to foist moronic arguments against using hydrocarbons, as energy resources.  These greenie retards are so damnably stupid and ignorant that you often even hear them referring to uranium as a "fossil fuel".  But listen to a greenie talk their hapless drivel about fossil fuels for a few minutes and you'll probably come to the conclusion that eugenics is perhaps not such a bad idea after all.

Flakmeister's picture

Fair enough....but the term fossil fuel is likely older than either of us might have something to do with fossil fuels being old, dead, and mostly buried....

But enough with semantics....

I may be mistaken but the original poster was, perhaps, hinting at an abiotic origin which is bat-shit crazy except for some primordial methane that may still be around...

Seize Mars's picture

Yes, theidea that oil is not biological inorigin is bat-shit crazy.

Except, of course for this big moon of Saturn which happens to have a lot of hydrocarbons. More than Earth. No ancient forests, though. Bat. Shit. Crazy.

centerline's picture

Bought into Nat Gas a couple years ago with idle cash.  Is about the only place in the market I am willing to sit and watch for awhile... also serves as a modest hedge anyhow.

falak pema's picture

the wages of fear, and the price of beer, won't pay for frack gas, as its on a losing slope in terms of ROI. But it will make the Utilities happy as its cheaper than coal. And as a believer in global warming I'm happy for small blessings. As coal burning is the worst eco scenario; better to go to CTL or CTG technology and stick to dirty frack gas, as its there, for utility/petrochem feedstock.

Crazy world the fossil fuel scenario of USA...

duo's picture

China will be happy to trade some of the dollars they have for our coal.

disabledvet's picture

Havn't checked WEC but they actually made a very dangerous and expensive investment into coal. "call for back up" in case the "Fed succeeds"...there is no substitute for coal in generating electricity. Period.

donsluck's picture

Oh, period, ok, end of discussion...NOT.

The charts prove you are mistaken.

John Law Lives's picture

Thank you for this post.  This is quite interesting and informative.