Who’s Responsible for Coal’s Decline?

Ken Silverstein | Nov 09, 2012

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Before Murray Energy’s Chief Executive released 156 people from his Ohio-based coal operations, he blamed the Obama administration’s “war on coal.” He went on to say a public prayer, bemoaning that America’s young people would not know the country in which he grew up.

But what Robert E. Murray failed to mention is that the federal regulations started by the 1990 Clean Air Act under President George Bush I are only part of the mosaic. The other parts include a dark recession that repressed electricity demand along with a boom in unconventional natural gas, or shale gas. And he did not mention that he has been a fierce partisan, able to give some $1.4 million in contributions since 2007, say news reports.

“My regret, Lord, is that our young people, including those in my own family, never will know what America was like or might have been,” Murray says, in a publicly released prayer published by the Washington Post. “They will pay the price in their reduced standard of living and, most especially, reduced freedom.”

Murray, who employs roughly 3,000 people and produces about 30 million tons of bituminous coal a year, according to the Post story, is most assuredly dealing with a White House that favors cleaner energies. But, from the vantage point of the Obama administration and its supporters, regulators are carrying out the will of lawmakers who passed legislation signed by the elder Bush in 1990. Recently, though, carbon dioxide was included as an emission under that law.

Sadly, Patriot Coal Co. filed for bankruptcy in July. Meantime, Alpha Natural Resources has said it will stop production at four Kentucky-based mines while laying off 150 employees. The major coal companies, which also include Peabody Energy, Console Energy and Walter Energy, took hits to their stock values a day after the election.

“A regulatory environment that puts coal at a disadvantage along with low natural gas prices have led many utilities to increase or accelerate their scheduled coal-plant retirements,” says Anna Zubets-Anderson, an analyst with Moody’s Investor Services that has a “negative” outlook for the coal sector. “In addition, newly proposed U.S. carbon dioxide regulations would effectively prohibit new coal plants by requiring new projects to adopt technology that is not yet economically feasible.”

Shale competition

The coal lobby has spent a lot of money trying to beat back some of the regulations by supporting political candidates sympathetic to its cause and by funding legal battles to turn back the regulatory clock. But it has been the onslaught of shale gas development that has stung the worst. Right now, those prices are comparable to coal and they are not expected to rise much in the coming years.

The result has been that coal used for electric generation is falling and is now about 45 percent of that market while natural gas' share is increasing, and fast. It is expected to go from about 25 percent today to as much as half in two decades. In April 2012, the U.S. Energy Information Administration reported that coal and natural gas each supplied 32 percent of the utility market in that month alone.

“Natural gas used to generate power has half the carbon dioxide emissions of conventional coal power generation and near zero sulphur emissions,” says BP’s Energy Outlook. “Gas is expected to displace coal in power generation across the (developed world) due to rising carbon prices, permitting constraints for new plants and mandates.”

But will natural gas prices remain low, which is giving it the boost it needs to win favor among utilities? The basic fundamentals would suggest that such prices will eventually rise. That’s because as more utilities demand natural gas, it would then put upward pressure on prices. It’s especially true if the United States would become a net exporter of that fuel to Asia and to Europe where such prices are much higher than those we pay here.

Richard Goodwin, an energy analyst in Florida, says that natural gas would have to rise to about $6 per million Btus before utilities would consider switching to a different base-load fuel such as coal. At present, the cost is about $3.60 per million Btus.

At some point, that is going to happen. But coal is not the only fuel that wants a greater piece of that pie. So do nuclear, wind and solar. The coal industry will therefore have to invest in new technologies so that it can step it up a notch, and the federal government has shown itself to be a willing participant. It is helping to fund “clean coal” projects by Duke Energy and Southern Company.

Sanctimony won’t help. But coal’s leaders can promote their cause by joining these discussions and becoming part of the solution.

EnergyBiz Insider has been awarded the Gold for Original Web Commentary presented by the American Society of Business Press Editors. The column is also the Winner of the 2011 Online Column category awarded by Media Industry News, MIN. Ken Silverstein has been honored as one of MIN’s Most Intriguing People in Media.

Twitter: @Ken_Silverstein

energybizinsider@energycentral.com



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Comments

Lets talk about carbon recovery.

The main reason the epa and government standards acts were created for the coal industry iis because of  carbon, of course we know there are other polutants released when coal is burned, such as sulfur dioxide and mercury.  We now have the technology to capture more   of these polutants than ever, maybe the coal industry needs to spend a little more of it's assets on developing processes to reduce the impact of coal on the environment.  There are many new uses being developed for use of carbon, and I was just recently told about      a company that has developed such products.  If the coal industry wants to survive they must join the future, and join forces with companies developing such things as super conductors that use carbon.   I  am mainly a solar person, and there are countless ways that carbon can be integrated into the thin film industry.  Instead of the two technologies fighting each other, they should be joining forces to create new ways to capture the carbon, and use it productively.

can-do attitude

To Ken Silverstein:
I can share aerial (1937-1950) photography of what was the heart of Milwaukee's industrial Valley along the Menomonee River and the waterways were lined with coal that fueled an industrial economy. The only coal remnant fuels one electric power plant today. There is ongoing discussion about conversion to natural gas. Locomotives ran on coal until a complete transformation to diesel fuel.
 
Natural gas used to come from coal (coal gas plants) until the early 1950s. We have not gone back to that process although it may be a possible niche in the future.
 
Large wind turbines and solar have also offset coal use. Whenever large wind is producing, it may cut into coal's electric production. Peaking plants turned to natural gas in the 1980s and have continued along that pathway.
 
A result in the economic downturn in 2008 may have been a permanent reduction shift of about 10% in the overall load curve (you may be able to check with your utility contacts to confirm this). My understanding is that Wisconsin lost at least two paper mills and two auto manufacturing sites (GM and Chrysler) that have been closed. These facilities may have been the largest electric energy users on the system. Many hundreds of other businesses have been closed that are not returning in the near term. Many mines across the country reduced their output and they are large energy users.
 
We have the current technology to reduce overall energy consumption by 50% in this country through major remodeling, design, engineering with energy efficiency, renewables, load management peak shifting strategies, and storage of off peak electric energy for heating, hot water, ice making AC, and plug in cars. This could reduce coal use and utility size by about 50% as well. It could happen over a few decades of time if we have the will and investment to do so. This is a direction utilities and the coal industry do not want to move in since no business is interested in downsizing. So they will fight for the status quo instead of what may be best for the common good and progress.
 
I am retired after 35 years in the utility business in the environmental and energy efficiency services area.
 
David Ciepluch
Milwaukee WI
dciepluch@att.net

Pragmatist approach - Ken here

Ken Here:

Allow me to provide some additional insight based upon my vantage point as a journalist who sits perched “above the fray.” Inevitably, these things boil down to one’s economic and political perspective: liberal, conservative and pragmatist. As the purveyor of the facts here, I try to find that common ground between what is economically viable and what is environmentally possible.

Again, just the facts here: Despite all the noise, the coal lobby shows that it has absolutely no national clout. It carried three states: Kentucky, West Virginia and one of the Dakotas. Other regions with coal as part of its economic fabric went to Obama: Virginia, Colorado, Pennsylvania and Ohio. Those were all battleground states too.

The point is that the coal lobby does not have the political power to do much to roll back any regulations. As someone who speaks to those all over the spectrum, it is clear to me that the only political path forward for the coal lobby is to negotiate and to quit blocking and obfuscating. This is not ideological. I understand that if you are conservative you think this is a liberal view and if you are liberal, you want the writer to drive the dagger right through the heart.

The liberals actually want the coal lobby to fight on. That’s because it can’t win at this point. The more it fights, the more it loses and the more and more it becomes irrelevant.

Conservatives want to fight on too -- to win the battle. The reasoning: At some point, the philosophical make up of Congress will change and the price of natural gas will rise. And coal will once again take the throne. Ok, we’ll talk in four years. I also understand the argument that if not for government’s tilt here, coal would still be on top.

Recognize that for as long as government has existed, it has always played a role -- especially in the energy sector. It will continue to do so and to imagine a world in which government is totally sidelined no matter what enterprise we discuss, I think it is unrealistic. Government may tinker around the edges or it may be far more involved. But it does participate in some fashion. In the case of coal, is trying to reduce the level of pollutants a reasonable role?

Therefore, the only practical path forward is for the coal industry to up the ante and to invest in new technologies so that when natural gas prices rise its product will be relevant. If it does not do this, it will lose out to the others: wind, nuclear, bio, solar, which by the way are partnering with government. I also get that the advanced coal technologies are now expensive and can't compete with cheaper natural gas. But the research and investment would eventually pay off and it should continue.

Coal now must choose its political tack. I can’t predict what its leaders will do. But I do think that if they meet the Obama administration half way, it would turn out to be the most long-lived strategy they could take.

Middle Ground

I understand the balance you have tried to create.

The real issue is the EPA ruling on CO2 as an AGW cause. Count me amoungst those that say it was an unfounded piece of regulatory rubbish published by an ideologues believe of  the correctness of the IPCC by this current Administration. But let me get into those weeds any further for now.

In my opinion a new balance of coal and Nat gas fueled electricity generation will gradually establish itself based on the price of the two fuels (and with due regard for regional source variances).

The balance of the fulcrum between the use of the two fuels is somewhere between $3.25-- $4.25 per MMBTU. As time passes and reality of shale gas average cost production settles in around $4.00 + MM BTU---the franchise utilities and the IPP's will go with the fuel that makes them the most money. Yes, that will be a somewhat lower coal demand.. and a quite a bit higher natural gas thru IGCC's (cheaper to build, faster to build).

That all said... any sustainable electrical power system needs, nay cries out for, a balance in generation types in order to serve the balanced need for baseload (Nuclear, Hydro, geothermal), mid day sustaining producers (CCGT's and coal) and peakers... solar, wind , diesels , etc.

Mr Murray's prayers will have him finally residing in that middle ground of purgatory--sort of half way between what he wants and what the new normal will practically allow based on price levels.

Thxs for the neat review article.  Tom Drolet

Bottom Line: Consumers Will Pay

No getting around the fact that electricity generated by natural gas is many times the cost of the same power generated by coal. Based on economics, the reduced electric demand should have reduced gas fired generation, not coal, as coal is the lowest cost -- but for regualtion.

From an energy security perspective the US is the Saudia Arabia of coal -- with more resource than we could consider using. The huge resource / reserve base and competition for sales is why coal has historically sold for close to its cost of production -- which is very low for strippable coal.

No such thing as free lunch. The substantial additional cost will be passed through to any consumer who can't figure out how to do without electricity.

Please provide specifics

Could you please provide specifics. Most quantitative analyses I've read show that gas is a better deal in today's economy. I realize that btus and cost per tons are different measurements. However, the coal utilities that have switched do say that gas is just as cheap today no matter how it is measured. They also say that gas is more volatile. Could you provide numerical references to your note?

TV ad miners are safe

I bet those miners appearing in the TV ad with Romney and at the rally on his behalf before the election are safe. (No, they weren't forced to be there but if they didn't go, they might be one of those 156 about to get canned.) Murray could have taken some of that $1.4 million in political donations to his buddies and used it to keep those miners he is about to fire. His prayer should have said something about how beautifully democracy actually works even though it didn't work in his favor.