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Natural Gas Is Surging

Utilities start relying less on coal, and that’s changing the market.


Yergin: Rethinking power.(MAURICIO LIMA/AFP/Getty Images)

HOUSTON — The battle between coal and natural gas might not be over, but the clear winner emerging is natural gas.

“Natural gas is a game-changer in electric power,” said Daniel Yergin, chairman of the IHS Cambridge Energy Research Associates. “Utilities across the country are rethinking their fuel source choices in light of the prospect of low-cost, long-term natural gas supply.”


This changing dynamic is a dominant topic among energy experts attending a conference here this week chaired by Yergin and hosted by his organization, CERA.

Coal-fired power plants account for about 45 percent of the nation’s electricity generation. Natural gas fuels 24 percent, up from 19 percent just five years ago. The federal Energy Information Administration predicts it will keep increasing its share of the generation pie. Nuclear power and renewable energy will not see large increases, if any at all, because natural gas is taking more.

“That’s significant, and it’s not just affecting the natural gas market but the overall power market,” said Yergin, author of the Pulitzer Prize-winning book The Prize: The Epic Quest for Oil, Money & Power. “That’s what you’ll hear [today] from the key speakers. This will be a big theme about the big rethink in the power industry as a result of this revolution.”


The revolution is largely due to recent discoveries of shale gas all over the country, such as the Marcellus shale formation in the Northeast. Experts predict these discoveries can provide the country with a century’s worth of domestic natural gas. Natural gas emits about half the greenhouse gas emissions of coal. And to environmentalists, natural gas is often considered the lesser of two fossil fuel evils.

Utility executives, hedge fund executives, and renewable energy company officials attending CERA made similar comments to Yergin’s in interviews with National Journal Daily.

“The battle is between coal and gas, and quite candidly that battle has already been won,” said Michael McMahon, managing director of Pine Brook Partners, a New York hedge fund. “It’s very hard for the coal advocates to get up and say coal is good,” McMahon added.

Coal lobbying groups argue that the Environmental Protection Agency is rolling out air pollution regulations that will wipe out 15-20 percent of the nation’s coal-fired power plants. That’s the main reason the industry is opposed to most of those regulations and to any type of price on carbon emissions.


The politics on Capitol Hill have not caught up to the nationwide shift. The coal industry lobby moved its message from defending its energy source to underscoring the benefits of “clean coal” technology, and its pull with lawmakers remains strong.

The technology, known as carbon capture and sequestration, is designed to help coal-fired power plants use fuel more cleanly. But it’s not commercially available anywhere in the world and is furthest along in its development in China. Natural gas trade groups, meanwhile, remain politically stifled by their coal counterparts. Gas lobbyists find it hard to advocate for their fossil fuel while not demonizing coal.

“Without a price on carbon, it becomes very difficult to fund technology development for CCS,” said David Mohler, senior vice president and chief technology officer for utility giant Duke Energy. “And without some kind of defined technology development strategy on a national level, we run a very high risk of a lurch to natural gas for electricity.”

Duke Energy announced this year it is merging with Progress Energy, and the combined company will be the biggest utility in the country. Duke produces most of its electricity from coal (62 percent), 31 percent from nuclear and just 5 percent from natural gas.

“We are moving toward natural gas; we just don’t want to do it excluding everything else,” said Mohler, who is speaking this week at CERA. He noted the importance of including renewable energy in any long-term generation portfolio plan to prevent potential consequences, such as price spikes, of switching only to natural gas. Duke only generates about 2 percent of wind and hydropower electricity combined.

His concerns are echoed by renewable energy executives.

“Even though we have very inexpensive gas right now, the best thing utilities in this country can do is ensure a clean energy portfolio, where you’re balancing gas and renewables,” said Don Furman, senior vice president of external affairs for Iberdrola Renewables, the second-largest wind power operator in the United States. “Renewable energy is a great hedge against gas prices.”

Natural gas is not a panacea. The Achilles’ heel of the gas industry is hydraulic fracturing, the controversial method to extract shale gas. Executives say the method, dubbed “fracking,” is vital to developing shale resources. Without fracking, the gas is unreachable. Yet environmental groups and people around the country who live near natural gas wells point to cases where the process has contaminated drinking water. A major series published last week in The New York Times reinvigorated these concerns. Indeed, another reason why the gas lobbying groups haven’t been advocating more for their energy source over others is because they’re preoccupied responding to concerns like ones reported in the Times, as well as the Academy Award-nominated documentary GasLand.

EPA is conducting a study on the environmental and public health impacts of fracking, but that report won’t be complete until late 2012. In the meantime, utilities are hedging their bets and consider natural gas the best answer, at least in the short-term.

This article appears in the March 9, 2011 edition of NJ Daily.

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