The Impending Decline of Coal

February 19, 2013

Natural gas is poised to replace coal as the most cost-effective fuel for electricity generation. Despite an abundance of coal, advances in hydrofracturing technology have precipitated a rise in natural gas production, which may lead to the decline of coal, say Carl Johnston, a senior fellow, Lewis Warne, a research associate, and H. Sterling Burnett, a senior fellow, at the National Center for Policy Analysis.

  • Over the last decade, net coal-fired electricity generation decreased 10 percent, while natural gas-fired generation increased 50 percent.
  • Proven gas reserves have increased 80 percent since 1990.
  • Oil and gas extraction employment has increased by 27.5 percent since 2008, whereas total nonfarm employment is down 3.4 percent.
  • Natural gas production increased from 0.38 trillion cubic feet in 2000 to 4.8 trillion cubic feet in 2010.
  • Natural gas prices have plummeted due to warm winters and increased production but analysts expect long-term prices to rise.

Coal still dominates electric power production -- 42 percent of U.S. electricity generation was derived from coal in 2011 and some 93 percent of coal is used for electricity. About 31 percent of natural gas is used for electricity, another 28 percent is used as an industrial feedstock and nearly 33 percent of natural gas is used to heat homes and buildings.

  • Uncertain future market prices of gas make coal's relatively stable price attractive.
  • Many proposed coal plants are not being built and others are being shut down due to increasingly stringent Environmental Protection Agency regulations, which require coal-fired power plants to capture carbon emissions.
  • New clean air standards could force about 12 percent of current coal-fired capacity to disappear by 2020.

Disappearing coal-based electricity generation will cause consumers to pay more for electricity when the current natural gas glut abates and energy production costs are higher. The United States has 256 billion short tons of coal that could be extracted with current technology. At the 2011 pace of 4 billion short tons of coal consumed, coal will be abundant for many years.

Johnston, Warne and Burnett conclude that while the shale gas revolution is a good development, coal should not be abandoned or overregulated given its abundance and stable inexpensive price.

Source:  Carl Johnston, Lewis Warne and H. Sterling Burnett, "Coal: Beginning the Long Goodbye?" National Center for Policy Analysis, February 2013.

 

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