Coal's Share of Power Generation Falls, Natural Gas Rises to Take its Place

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Researched by Industrial Info Resources (Sugar Land, Texas)--U.S. use of coal fell 5% in 2011, part of a trend that started in 2009 and appears to be gathering pace. The "Electricity Monthly Update" from the U.S. Energy Information Administration reported on June 27, 2012, that coal and natural gas were in a statistical tie, each with a share of 32% of U.S. net power generation sources, for the first time since 1973. The drop in the use of coal has been substantial in the last two years, as coal represented 46% of power generation in December 2010 and 48% in December 2009.

Industrial Info is tracking 188 new natural gas build projects in the U.S. with start dates between January 2012 and January 2014, totaling 32,489 MW. Click on the chart to the right to view these projects by market region.

The decisive factors in the shrinking of coal's market share, and the growth of natural gas, are pricing and regulation. Natural gas prices have continued to drop since the most recent peak price in the summer of 2008 to levels not seen since 2002. Coal prices have recently been relatively more stable, but on an upward trend; the most recent price trough was back in 2007, and prices have only gone up since, apart from the recovery from a massive spike during the summer of 2008.

That price trend alone would be enough to explain the fall of coal and rise of natural gas but there is another important factor in the future use and power generation share of each -- environmental regulation. Federal regulations such as the Cross-State Air Pollution Rule and Mercury and Toxic Air Standards have resulted in coal plants being faced with decisions to overhaul or retrofit their power generation processes, or even shut down rather than spend the funds required to comply with the new regulations. Interestingly, this pressure on coal could lead to positive outcomes in the coal sector and is already influencing spending. For more information, see June 29, 2012, article - Peabody Energy Sees Bright Spots for Coal Amid Market Headwinds, and May 9, 2012, article - Strategic Shifts in U.S. Power Industry Drive Billions in Spending Decisions.

Industrial Info is tracking the decommissioning, mothballing or shuttering of 83 coal projects totaling 11,601 MW between January 2012 and January 2014. Click on the chart to the right to view these projects by market region.

A large factor in the declining price of natural gas is the increase in supply due to hydraulic fracturing. Given the volatility of commodity trading, and the increasing public opposition to hydraulic fracturing, the days of low natural gas prices are almost certainly numbered.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.