Coal’s future may not be so bleak after all

The coal industry has taken its lumps over the past few years, with a one-two punch from lower-cost natural gas and increasing Environmental Protection Agency regulations.

But emerging markets in China and India appear to be helping steam coal — used for power generation — make a comeback. And new coal-fired power plants in unlikely places like Germany and Japan are also demanding more coal.

Germany recently opened its first coal-fired power plant in eight years, and plans for 10 more over the next two years. Japan has abandoned its nuclear power reactors since the 2011 tsunami and the meltdown of the Fukushima plant. Previously, nuclear power had provided about 30 percent of Japan’s power, and the Japanese are turning to natural gas and coal to replace it.

Coal production is predicted to be up 2.5 percent next year or 1,033 Mmst (million short tons) more, according to the U.S. Energy Information Administration’s website.

Compare that to natural gas production, which in West Virginia grew nearly 37 percent from 2011 to 2012, and is projected to grow up to 56 percent by 2040.

That growth projection has kept natural gas priced modestly, although spot prices rose slightly last week to $4.24 per million BTUs.

And cheaper costs have U.S. power plants using natural gas, which also burns cleaner than its fossil fuel cousin.

“The impact on coal is even greater due to a shift from coal to natural gas and renewable energy technologies, both for electricity generation and for direct use by industrial sectors,” according to a report by Morgantown-based Downstream Strategies.

“Following a sharp overall decline in coal-fired electricity generation from 2011 through 2016, generation from coal increases for the rest of the projection period, resulting in an average annual increase in coal-fired electric generation of 0.2 percent through 2040. Despite this increase, coal’s share of total generation falls from 42 percent in 2011 to 35 percent by 2040.”

And the U.S. Energy Information Administration had this to say:

“Low natural gas prices, weak electricity demand growth and the need to comply with the implementation of the Environmental Protection Agency’s Mercury and Air Toxics Standards (MATS) regulations have led several power producers to recently announce plans for the retirements of coal-fired facilities.

“On Nov. 14, 2013, the Tennessee Valley Authority (TVA) announced that it was retiring eight coal-fired units with over 3,000 megawatts of generating capacity. The current retirement plans are an addition to TVA’s retirement plans publicized in 2011.

“South Carolina Electric & Gas (SCEG) announced that it had ceased operations at its Canadys Station generating facility earlier in the month. The 300-megawatt plant’s closing is part of SCEG’s efforts to reduce emissions and comply with MATS regulations.”

That translates into fewer coal jobs, while the natural gas industry has increased jobs exponentially in West Virginia

According to 2012 figures, the coal industry employed more than 20,400 people in the state, but has lost 3,500 jobs over the past five years. Natural gas has added 6,600 jobs, mostly in north-central West Virginia, since 2007, bringing the total number of natural gas direct employment to 16,000. Indirect employment figures have bubbled to more than 30,000.

Natural gas prices are low — and now rival roughly the same price as in 1976 — because the market has been fairly flat for 10 years.

But can the natural gas industry sustain that bargain basement price for consumers over time?

Unlikely, says the coal industry.

Coal proponents say the price of natural gas, although recently steady, has a tendency to fluctuate and has been as high as $15 per million BTUs.

An official with the coal industry said Thursday that the price of coal has remained steady in the $2 to $3 per million Btu range and he thinks the safer bet for stable pricing is coal. Power companies that make the switch to natural gas may face more uncertain prices in the future, he continued. Consumers, he said, could face up to three times higher energy costs.

Natural gas is cheaper to produce, in part because plant production is cheaper, the official said, with 80 percent of operation costs being fuel. Coal’s numbers for fuel costs are 20 percent, he said.

Independent Oil and Gas West Virginia Executive Director Charlie Burd said natural gas prices peaked in 2008 at more than $12 per million BTUs. By 2009, prices had plummeted to $3.95, sliding farther in 2012 to a little more than $2, he said. Average prices in 2013 — $3.70 per million BTUs, he said.

Production in the state, thanks to deep drilling in the Marcellus shale, has doubled in eight years, with 70 percent of natural gas production now coming from the Marcellus shale.

Burd said there’s no reason to think that natural gas will not take over the forefront of energy production in the U.S.

“Natural gas is going to be the bridge fuel from coal,” he said. “It won’t be wind and it won’t be solar.”

Technology is a key factor in the future production of both fuels.

For the coal industry that means carbon capture and storage, which is at this point not proven and not available.

Jason Bostic, West Virginia Coal Association vice president, said the problems with carbon cap and storage are two-fold: The technology has to be “readily deployable and easily scalable,” neither of which is currently possible. Underground storage, he said, would come with a host of regulatory issues, as well as potential problems like leaks, groundwater management and ownership.

On the other hand, natural gas technology has advanced to the point where Dominion Resources has plans to liquefy gas and ship it overseas, where natural gas is nearly reaching that $15 per million BTUs price point, according to Burd.

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And then there are those EPA regulations.

In 2011, the EPA finalized the first national standards for the reduction of mercury and other toxic air pollutants for coal- and oil-fired power plants, according to the EPA’s website.

“Power plants are currently the dominant emitters of mercury (50 percent), acid gases (over 75 percent) and many toxic metals (20-60 percent) in the United States,” the website says. About 40 percent of the current electric-generating units do not have advanced pollution control equipment, according to the website.

Medicine.net says mercury exposure at high levels can harm the brain, heart, kidneys, lungs and immune systems of people of all ages. The most common occurrence of mercury exposure occurs in consumption of fish that have been exposed to the chemical; high levels of mercury in the bloodstream of fetuses and young children may harm the developing nervous system, the website says.

According to the EPA’s fact sheet, new standards will affect only new coal- and oil-fired power plants, and will not change the final emission limits or other requirements for existing power plants.

Chris Hamilton, senior vice president of the West Virginia Coal Association, said that’s cold comfort when the Obama administration has a record of “either not knowing the implications of its policies, if not flat-out misleading the public,” citing the initial promises of the Affordable Care Act that said Americans who had health insurance would get to keep their plans, which turned out not to be true.

But, Hamilton said, to be fair, the EPA regulations converged with other factors, like lower-priced natural gas, relatively mild weather patterns and a slow economy to make coal production more economically prohibitive. Meaning, he said, coal’s short-term future is the “status quo,” and a return to 2008’s 168 million tons of coal production will not happen for several years.

That 2.5 percent projected growth in the next year? Hamilton said it is not necessarily a growth trend, but rather a “moderate fluctuation.”

West Virginia has lost 25 percent of its coal production in five years, he said.

At current production rates, known coal reserves will still last up to 250 years, the coal company official said; however, he said recoverable reserves will last about 125 years.

However, coal still provides more than 30 percent of the world’s primary energy needs and generates 41 percent of the world’s electricity, according to the World Coal Association’s website.

Clearly, the coal market isn’t going away soon, at least not if the Asian market is a predictor. Although Chinese consumption may begin to ebb, other Asian countries are predicted to pick up the slack.

According to the International Energy Agency Report, “While China will account for nearly 60 percent of new global demand over the next five years, government efforts to encourage energy efficiency and diversify electricity generation will dent that growth, slowing the global increase in demand.

“For the rest of Asia, coal demand is forecast to stay buoyant over the next five years. India and countries in Southeast Asia are increasing consumption, and India will rival China as the top importer in the next five years.”

Coal consumption in China will still remain comparable with the rest of the world combined, the report said. China consumes mostly metallurgical coal, which is used to make steel, instead of steam coal.

West Virginia coal accounts for nearly 50 percent of U.S. exports.

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