The assumption has been that the US has an unlimited supply of shale gas at the present price of about $4-$5 per million British thermal units. But it does not. The gas people I know argue that without an increase to $8 or $9 per mBtu, the real costs of shale gas cannot be covered.
Coal-fired power plants to be snuffed out faster than expected
Coal-fired power plants to be snuffed out faster than expected
By John Dizard
Published: June 26 2010 03:00 | Last updated: June 26 2010 03:00
US Congress may not pass a climate bill this year, but that would not mean the environmental movement has lost its fight to cut coal use. On the contrary, there will almost certainly be a far more rapid retirement of coal-fired generation plants over the next five years than the market anticipates, and very likely a much more rapid rise in natural gas prices and imports.
Environmentalists and regulators are engaged in a multi-front war on carbon-intensive fuel use. If carbon restrictions are blocked, then they can turn to indirect controls using existing laws, in particular the Clean Air Act. Even if the Democrats were to lose control of Congress, substantially changing the CAA would be nearly impossible for years.
There is one potential “air” component of a compromise energy/climate bill, the “3P”, or three pollutant bill sponsored by Senator Tom Carper (Democrat, Delaware), and Lamar Alexander (Republican, Tennessee). Carper-Alexander, as it is known, is an attempt at a bipartisan law that would control sulphur dioxides (SOX), nitrogen oxides (NOX), and mercury emissions from coal plants. This would avoid the litigation and uncertainty of the alternative, which would be Environmental Protection Agency regulations covering the same three pollutants. Some tweaking of Carper-Alexander is the best chance Congress has for a consensus air pollution bill this year.
Even if a deal can be reached on “3P”, hundreds of coal-fired generation plants face shutdown faster than any proposed carbon law would have effected. The legal instrument for this is the Maximum Achievable Control Technology (Mact) provisions of the CAA. Essentially, they will require coal utilities to reduce their emissions of hazardous pollutants, as defined by the EPA, to the levels achieved by the best 12 per cent of plants in their class. Once an industry rule comes down, each “source”, or plant, has three years, with one year of allowed extensions, to bring their emission levels down to the standard.
In the case of coal plants, the EPA is, effectively, under a court order to issue new proposed rules for pollutants including mercury and acid gases by March of next year. The final rules would go into effect that November. Successful court challenges are, on past form, unlikely.
The utilities and enviros agree these are likely to lead to a large number of coal plants being closed by 2015, since it will be uneconomic for them to comply with the law.
The enviros and regulators want to force utilities to install expensive “scrubbers” on the smokestacks on the half of all coal plants that do not have them. If that is uneconomic, then shutting coal-burning plants is an acceptable, even preferable, carbon-reducing, alternative.
The enviros, and many regulators, say most of the shut-in capacity can be replaced with renewables or conservation. The utilities say most of the coal would be replaced with gas.
How much coal, gas, or conservation are we talking about? The coal plants most at risk of shutdown are smaller generators more than 40 years old, without scrubbers. That is about 15 per cent of all coal-fired generation. If these are closed within five years, since they are too old to be worth saving, US coal demand would drop by more than 150m tons.
Perhaps conservation can cover that cut in power supply. However, that is likely to be an over ambitious goal over five years, absent an even bigger recession.
Hugh Wynne, a utilities analyst with Bernstein Research, says: “We have something like a 15 per cent to 20 per cent reduction in coal-fired generation as a result of the expected plant retirements, unless the gas price moves up by several dollars, which would put it closer to 12 per cent. This would increase the gas demand by 10 per cent of national supply by 2015.”
The assumption has been that the US has an unlimited supply of shale gas at the present price of about $4-$5 per million British thermal units. But it does not. The gas people I know argue that without an increase to $8 or $9 per mBtu, the real costs of shale gas cannot be covered.
That leaves liquefied natural gas imports. But would that much LNG be on offer in 2015? Poten & Partners, a shipping and LNG consultancy, says an increase in demand of 5bn mcf per day could be handled with the anticipated world export capacity. That would be somewhat less than required by the probable coal shutdowns. Any demand increase above that level would require new LNG plant construction by the exporters.
The shale and the LNG people believe a sustained $8-$9 gas price is necessary to get new levels of supply.
That is not yet in the market. It will be soon. johndizard@hotmail.com
Coal-fired power plants to be snuffed out faster than expected
Coal-fired power plants to be snuffed out faster than expected
