Wednesday, October 10, 2012

Stunning Fact: Gas Prices Will Determine Whether 21,000 Megawatts Or 141,000 Megawatts Of Coal Retires, According To Blockbuster New Study

The extent and intensity of gas versus coal competition is simply astonishing, as the respected Brattle Group documents in a new study.

Brattle predicts that 59,000 to 77,000 megawatts of coal plants will retire by 2016, if gas prices are around $4.30 in 2015 or roughly 20% of the nation's coal fleet and 7% of total, current US generation of all types. The latest estimate is about twice its previous number.

Brattle states: "Our new analysis shows about 25 GW [25,000 megawatts] higher retirements than the levels we projected in December 2010 due mainly to lower expected gas prices--despite the somewhat more lenient environmental regulations that we currently envision." See page 2 of the Executive Summary.  So Brattle boosts its estimate of expected coal retirements, because much lower gas prices and lower power demand are powerful, negative factors that overwhelm regulatory concessions and flexibility for coal plants included in finalized rules.

Indeed, the number of actual coal retirements is highly sensitive to the price of natural gas.  As of July 2012, retirements of 30,000 megawatts of coal plants had been announced, but Brattle finds that coal retirements would fall to as low as 21,000 megawatts, if gas prices are $1 per thousand cubic feet higher than its $4.30 modeled price.

Conversely, coal retirements skyrocket to as much as 141,000 megawatts or about 43% of the nation's entire coal fleet, if gas is $1 below the $4.30 mark.

Yesterday's spot natural gas price averaged $3.17.  If prices stayed close to that level, the Brattle Group study concludes that an enormous 115,00 to 141,000 megawatts of coal generation would retire due to competition from gas.

The price of gas is the pivotal variable. Put simply, the price of gas is king!


  1. Concerned ScientistOctober 10, 2012 at 9:52 AM

    A good and important point. If gas companies can be patient for a few years they can gain a much bigger market share. Some areas of the Marcellus can be economic down to $2/mcf and large areas can be economic at $4.30.

    It will be great news for the environment if the price remains that low. Let's hope that a lot of new, unnecessary federal regulation of the industry doesn't jack up the price to where it's more profitable to burn coal. It would be a real tragedy if the efforts of environmentalists to make fracking more difficult ended up leading to more coal being burned and thus a dirtier environment.

    1. Consider who wants higher gas prices. It's fascinating. Obviously producers do, though most know prices can go too high to be good for them. Coal does since it is in direct price competition with gas. Oil heating dealers want higher gas prices as gas is displacing heating oil. Some renewable companies would be glad to see higher gas prices because that would boost electricity prices and make financing renewable projects easier. A group of environmentalists are doing everything they can to outright ban shale gas and otherwise increase gas prices--despite the obvious negative impact on air, climate, and water that would result. Those who don't want higher gas prices are essentially industrial, commercial, and residential consumers of gas as well as those in the CNG transportation business.

    2. I should have added that the nuclear power industry--operators of existing plants and those seeking to build new ones--want higher gas prices, as they would increase the price of wholesale electricity. Higher gas prices means higher margins/profits for existing nuclear power plants.

    3. Concerned ScientistOctober 10, 2012 at 11:26 AM

      Fascinating how the whole thing fits together and you are right there are a lot of big interests who would like to see gas prices go higher. My main interest is in doing what is best from a realist standpoint for the environment and for climate change. That is why I support shale gas and would like to see the price stay low enough to make a big switch from coal to gas but not so low that it is unprofitable. The real miracle of shale gas is that this appears to be attainable - at least for the near future.