Coal’s Unexpected Ally: Natural Gas
Guest post by David Middleton
I concluded my previous coal post, The Resurgence of the American Coal Industry, with the following:
The U.S. coal industry is doing exactly what the oil & gas industry did from 2014-2016. In the face of oversupply relative to demand and a collapsing commodity price, the industry is making itself “leaner and meaner.” Mr. Denning referred to natural gas as the “enemy” of coal. That’s funny, I find oil & gas for a living and have never thought of coal or nuclear power as enemies. Fair competition is good for business… And as an electricity consumer, I don’t like paying more than 10¢ per kWh for electricity.
Natural gas prices are unlikely to remain this low for very long. $2.50/mmbtu is uneconomic in most of the shale plays and very uneconomic in the Gulf of Mexico, except on a cost-forward basis. When natural gas production and consumption come back into balance, it will probably be at a price of $3.50 to $5.00/mmbtu. Coal is very competitive with natural gas above $3.50/mmbtu.
However, many of the comments continued to reflect the mistaken belief that coal can’t compete with its “enemy” natural gas. Australia provides the perfect refutation of this notion:
Australia’s Energy Luck Runs Out
By David Fickling
April 9, 2017
With its abundance of mineral wealth and sun-kissed shores, Australia takes pride in thinking of itself as the “lucky country.”
That sounds good until you consider the full quote from which the phrase is derived — a warning that this natural endowment was being squandered by the second-rate way the nation is governed.
Politics lies at the heart of Australia’s current energy paradox: How can one of the world’s largest exporters be having trouble keeping its lights on?
Australian wholesale electricity prices have doubled since the closure of the Hazelwood coal generator was announced
Wholesale electricity prices in Victoria have more than doubled since Nov. 3, when Engie SA announced plans to close its 1.6-gigawatt coal-fired Hazelwood power station. More shocks will follow: About 3.6 GW of coal generation capacity is scheduled for closure at present, rising to 7 GW by 2030 according to Bloomberg New Energy Finance.
Such changes shouldn’t cause this degree of difficulty. The U.S. has shut about 39 GW of coal-fired capacity since the end of 2012 without significant upsets, while the U.K. closed about 8.4 GW in the five years through 2015. Australia ought to be able to handle 1.6 GW dropping off the grid.
Part of the explanation is different trade dynamics. Thanks to its greater exposure to global export markets, gas in Australia has failed to undercut coal on price in the way it has in the U.S. and U.K.
Indeed, the country’s LNG plants are so hungry for volumes that they’ve been in direct competition with local generators. Since the closure of Hazelwood was announced, domestic gas prices have reset to match the regional spot LNG market:
Australian natural gas prices have reset above those in the Asian LNG market
Rising fuel costs have been so damaging for the economics of gas-fired electricity that the Australian Energy Market Operator expects such generation to decline by about 15 percent between 2016 and 2021.Where coal is being replaced, it’s with renewables: Almost 70 percent of the additional planned capacity in the national electricity market is for wind-power plants, with a further 13 percent going to utility-scale solar.
It’s worth recognizing that this is good news. Faster withdrawal from fossil fuels is clearly better for the global climate, and the volume of wind and solar set to hit the market means there’s little risk of outright shortages over the next five years or so.
One challenge remains. If coal-power retirements accelerate, solar and wind will be unable to fill the gap quickly enough, especially given the way their variability can undermine the stability of the grid. The government’s plans to add 2 GW of hydroelectric capacity in the mountains southwest of Canberra will help, as will battery-storage proposals like the one Tesla Chief Executive Officer Elon Musk has offered for South Australia. They won’t make the problem go away altogether.
I just love how “Gang-green” can contradict themselves without missing a beat.
Faster withdrawal from fossil fuels is clearly better for the global climate, and the volume of wind and solar set to hit the market means there’s little risk of outright shortages over the next five years or so.
One challenge remains. If coal-power retirements accelerate, solar and wind will be unable to fill the gap quickly enough, especially given the way their variability can undermine the stability of the grid.
Priceless irony notwithstanding, Australia’s energy plight is indeed “good news” for both U.S. coal and natural gas producers:
JAN 31, 2016
The U.S. and Australian Race to Export Liquefied Natural Gas
Jude Clemente , CONTRIBUTOR
I cover oil, gas, power, LNG markets, linking to human development
Free market economies Australia and the U.S. will be in competition for the export of Liquified Natural Gas (LNG). Since 2010, Australia’s gas demand has increased 10%, but its gas production has increased 35%, compared to an 8% increase for use and 38% gain in production for the U.S. Per BP data, Australia and the U.S. have netted 75% of the 260 Tcf gain in proven global gas reserves since 2005.
In fact, through 2020, the two countries are expected to account for 90% or more new LNG exports. Overall, the global LNG market is set to increase by 50% between 2015 and 2020, nearly 20 Bcf/day. This year alone will see a 2.6 Bcf/day increase in LNG supply.
Australia could add six new LNG export terminals by 2020, tripling its liquefaction capacity to over 13 Bcf/day. Although Cheniere Energy’s U.S. LNG export facility at Sabine Pass, the first of its kind in the continental U.S., was delayed until late-February or so, the country could be exporting 10 Bcf/day by 2020, almost equaling current global leader Qatar.
This year’s expansion of the Panama Canal will up competition in the U.S. to ship LNG to Asia, where over 70% of the world’s LNG is consumed. The U.S. has lower production costs and lower capital costs for new infrastructure, namely liquefaction facilities. Bolstered by the “shale revolution,” for instance, the more difficult Gulf of Mexico now produces just 5% of U.S. natural gas, versus over 25% 20 years ago.This is in contrast to the expensive offshore gas projects in Australia, now responsible for over 50% of all floating liquefaction capacity under construction. Over 90% of Australia’s traditional gas resources reside in the harder-to-develop North West Shelf offshore.Escalating labor costs have been a key factor in Australia’s drastic LNG cost overruns. In Australia, oil and gas workers can make $165,000, 30-35% more than in the U.S. and double the world’s average. One Harvard expert finds that “Australian LNG seems to be the worst business case globally,” with costs range being 2-3 times higher than in the U.S. (see here).
Daniel Yergin just said that the Saudi’s “will not destroy the US shale industry…It takes $10bn and five to ten years to launch a deep-water project. It takes $10m and just 20 days to drill for shale.” U.S. gas production is rising by 1.5% per year, three times faster than consumption (projections here).
Thus, U.S. gas prices will remain lower than in other markets, and arbitrage opportunities for companies to ship LNG will remain. North America’s gas prices are mostly set at liquid trading hubs, more linked to supply and demand fundamentals.
The key importing nations are not expected to be producing much more gas, so the internationally traded market will increase its current share of 30% of total gas consumed, closer to the 60% of oil demand that is traded internationally. Making gas more of a global commodity like oil, LNG now accounts for about 33% of all traded gas and 10-12% of total gas demand. The LNG market is just another example of the obvious: the world continues to become more connected, not less.
Bear in mind the fact that U.S. coal is very competitive with natural gas when gas prices are above $2.50/mmbtu and natural gas exports are just now ramping up:
100th LNG Cargo Shipped from Sabine Pass Liquefaction Facility
- Published: Monday, 03 April 2017 06:10
Cheniere Energy announced today the 100th cargo of liquefied natural left the company’s Sabine Pass liquefaction facility on Saturday, April 1st, 2017. Including the 100th cargo, Cheniere has delivered cargoes to 18 countries on five continents since the first shipment on February 24, 2016. “This milestone for Cheniere is a testament to the global demand for American LNG, the hard work and dedication of Cheniere’s workforce, and our unique business model that enables customers large and small to access this fuel,” said Jack Fusco, Cheniere’s President and CEO. “Our entire workforce shares in this milestone and in Cheniere’s future success.”
In February 2016, Cheniere became the first company to ship LNG from the contiguous United States in over 50 years.
By the end of 2018, the U.S. will be a net exporter of natural gas:
COMMODITIES | Wed Mar 29, 2017 | 6:38am EDT
After six decades, U.S. set to turn natgas exporter amid LNG boom
By Scott DiSavino
The last time the United States was a net exporter of natural gas was in 1957, when Dwight Eisenhower was president. That should change in 2018 when the country is expected to become the world’s third-largest exporter of liquefied natural gas (LNG).
By the end of next year, U.S. LNG export capacity in the lower 48 states will top 6 billion cubic feet per day (bcfd), or 8 percent of the country’s domestic consumption, up from zero at the beginning of 2016. Six bcfd of gas can fuel about 30 million U.S. homes, or almost every house in California, Texas and Florida combined.
That growth in U.S. LNG exports is set to transform world energy markets. Just a decade ago, before the shale revolution, the United States was expected to become a growing LNG importer, not an exporter, likely dependent on Russian, Middle East and North African gas, much as it has for decades depended on foreign crude.
And is on the path to exporting 55 bcf/d (55 million mmbtu/d) by 2032:
55 Bcf/d of LNG Export Applications Received by DOE
in 360 Articles / Closing Bell Story / LNG / Natural Gas News by— Oil & Gas 360
March 21, 2017
65 export applications on file
Global LNG trading is expected to grow significantly in the next 15 years, and much of this growth will be fueled by exports from the U.S. The EIA reports that 65 applications have been filed to export LNG to other nations, with applications totaling nearly 55 Bcf/d. For reference, U.S. LNG exports from 1985 to 2011 were relatively steady and averaged about 164 MMcf/d.
The expansion of U.S. natural gas exports, combined with domestic demand will keep natural gas prices high enough for coal to be competitive. Couple this with the “bumbling start” at the Department of the Interior and the American coal industry will be resurgent:
Secretary Zinke Issues Lease for 56 Million Tons of Coal in Central Utah
WASHINGTON – U.S. Department of the Interior Secretary Ryan Zinke today announced the approval of a $22 million coal lease on the Greens Hollow tract in central Utah to Canyon Fuel Company, LLC, a subsidiary of Bowie Resource Partners, LLC. Coal mining in the area currently supports nearly 1,700 mining and related jobs.
Secretary Zinke also announced Bureau of Land Management (BLM) career veteran Michael Nedd will serve as Acting-Director of the BLM. Previously, Nedd served as Assistant Director for Energy, Minerals, and Realty Management; his selection signals the Secretary’s focus on elevating responsible energy development on public lands where appropriate.
“The United States has more coal than any other nation on earth, and we are lucky to be at a time in our history that we have the technology available to responsibly mine coal and return our land to equal or better quality after,” said Zinke. “For many communities and tribes in Utah, Montana, New Mexico and other states across the west, coal on public lands has been both a boon and a missed opportunity. With the potential for thousands of jobs and millions in economic opportunity, the Interior Department is committed to balancing the development and conservation of these resources. The Greens Hollow lease sale is a sign of optimism for the Trump Administration and the pro-energy and pro-growth economic policies to come.”
On January 4, 2017, the Utah BLM office held a competitive coal lease sale for 6,175 acres of the underground Greens Hollow coal lease tract following several stages of environmental analysis. It is estimated to contain more than 55 million tons of recoverable, high-energy-producing coal. The bid of $22,850,000 by Canyon Fuel Company, LLC (Canyon Fuel) was determined to be the high and acceptable bid ensuring fair market value of the coal. Greens Hollow holds a lease adjacent to the mine which currently employs over 660 workers and 1,000 supporting jobs in the area.
The tract is part of the Wasatch Plateau Known Recoverable Coal Resource Area and is immediately adjacent to the operating SUFCO mine near Salina, Utah. The lease is wholly underground coal with approval for two small surface disturbances necessary for safety and essential mine services. The Greens Hollow lease is feasible to underground mining, which helps ensure the vital water, aesthetic, and archeological resources are protected.
Coal is back…
Interior agency’s website creates confusion
By Gregory Wallace, CNN
Updated 9:12 PM ET, Fri April 7, 2017
But when a tranquil hiking scene was replaced by a wall of coal on the home page of the Bureau of Land Management’s website, more than a few people took notice. The agency, best known for managing millions of acres of federal, often recreational land, replaced the photo with another scene on Friday.Some questioned whether the bureau was telegraphing a change of priorities. Interior Secretary Ryan Zinke recently lifted Obama-era restrictions on coal mining on public land, and signed a $22 million coal mining lease for land in Utah.Greenpeace USA tweeted: “Putting a giant wall of coal on the BLM site won’t bring back coal, the future is safer without it!”The agency says the coal photo was not intended to signal a shift in priorities and is instead part of a new digital strategy, where each week it will showcase a different scene from its vast land holdings — some 245 million acres, mostly located in the western United States.[…]
The coal image has since been replaced; but it at least drew a moronic Tweet from Greenpeace and clear proof that “the war on coal is over”…
Trump’s Interior Secretary: The ‘war on coal is over’
By Joel Connelly, SeattlePI Updated 5:17 pm, Wednesday, March 29, 2017
U.S. Interior Secretary Ryan Zinke, in a one-two Trump administration bid to boost America’s beleaguered coal industry, has lifted the Obama administration’s moratorium on new coal-mining leases on federal land.
“It is certainly a signal that the war on coal is over,” Zinke, a former Montana congressman, said during a Wednesday telephone briefing for journalists.
The Interior Secretary’s action came a day after President Trump used an executive order to repeal the Clean Power Plan, an Obama initiative to make America’s power plants reduce emissions of greenhouse gases that cause climate change.
The U.S. Bureau of Land Management — known to critics as the “Bureau of Livestock and Mining” — has long played a major role in coal leasing throughout the West. Public land accounts 40 percent of America’s coal production.
BLM lands include the Powder River Basin in Montana and Wyoming, a supplier of coal to the Colstrip plants … and of the coal that industry and railroads have wanted to export from Northwest ports to China.
Having lifted the moratorium on Federal coal leases, the next step will be to clear the obstacles to export markets:
TUESDAY 20, DECEMBER 2016
NW coal exports back on the table under Trump
by Kevin Taylor
Zinke’s selection has also drawn wide praise from some tribal leaders. A bulwark of his support in Indian Country is his alignment with the Crow Nation in Montana to push for coal export terminals. The Crow rely on coal deposits to fund tribal government and services.
In Congress, Zinke has been a staunch supporter of the Gateway Pacific Terminal, a $600 million facility proposed for Whatcom County that would export about 48 million tons a year of coal mined in western states to Pacific Rim markets.
Zinke also wants to lift an Interior-imposed moratorium on new leases for coal extraction on federal lands, 90 percent of which takes place in the Powder River Basin in Montana and Wyoming, and overturn a Corps of Engineers denial of the Gateway permit.
“The Gateway Pacific Terminal is incredibly important to Montana, the Crow, and even to the blue-collar workers in Washington State because it is literally the gateway to economic prosperity and rising out of poverty,” Zinke said in May. “It’s a sad day in America when even our Army Corps of Engineers can be wooed by special interests.”
But the Crows’ hopes for coal ports in Puget Sound have crashed into opposition from Washington’s coastal tribes, which argue that the facilities would imperil their treaty-guaranteed fisheries.
“If someone wrote a script about a high council whose job it was to make a planet desolate & lifeless like Dune? You’d have #Trump’s cabinet,” Seattle author Gyasi Ross, a member of the Blackfeet Nation, wrote on Twitter.
Fawn Sharp, president of the Affiliated Tribes of Northwest Indians and chairwoman of the Quinault Indian Nation tells Crosscut, “Given the comments that have been made by Mr. Trump and some of his nominees, such as EPA Director Designee Scott Pruitt, it is certainly conceivable that efforts will be made to push for more fossil fuel exploitation and distribution.”
The affiliated tribes have opposed the Dakota Access Pipeline…
The Affiliated Tribes of Northwest Indians were defeated in the DAPL battle. Permitting of the Gateway Pacific Terminal was blocked by the U.S. Army Corps of Engineers because Lummi Nation complained that it might interfere with their “usual and accustomed fishing rights.”
“I have thoroughly reviewed thousands of pages of submittals from the Lummi Nation and Pacific International Holdings,” said Col. Buck. “I have also reviewed my staff’s determination that the Gateway Pacific Terminal would have a greater than de minimis impact on the Lummi Nation’s U&A rights, and I have determined the project is not permittable as currently proposed.”
Both the Lummi Nation and Pacific International Holdings, LLC, provided voluminous information regarding fishing practices, potential impacts, and mitigation to support their positions. The district’s evaluation of effects of the proposal on the Lummi’s U&A fishing rights is undertaken to fulfill the federal government’s responsibility to protect treaty rights. The Corps may not permit a project that abrogates treaty rights.
As part of its evaluation of the permit application for the Gateway Pacific Terminal proposal at Cherry Point near Ferndale, Washington, the Corps had been overseeing development of a Draft Environmental Impact Statement consistent with National Environmental Policy Act requirements until the applicant suspended this work April 1. As part of standard regulatory procedures, the Corps has continued evaluating the proposal consistent with the requirements of other federal laws and conducting consultations as needed consistent with the requirements of the Endangered Species Act, the National Historic Preservation Act, and our tribal treaty trust responsibility.
USACE can’t permit the Gateway Pacific Terminal for political (treaty) reasons, not for engineering or environmental reasons. So, there is a clear pathway to constructing export terminals.
Coal is competitive with natural gas at current gas prices. Current market trends will make coal even more competitive with natural gas over the next 15-25 years. Political obstacles to coal mining, consumption and exports are already being dismantled. Coal will not likely return to its heyday… However, to paraphrase Samuel Clemens, “The reports of coal’s death are greatly exaggerated.”