Shale Gas Bankrupted The U.S. Coal Industry

  • Date: 14/04/16
  • Robert Rapier, Energy Trend Insider

Don’t expect to receive to receive a fully truthful account of why the coal industry is in trouble from environmental organizations.

Today, as had been expected, Peabody Energy Corp. — the largest coal producer in the United States — filed for Chapter 11 bankruptcy protection. Following the announcement I immediately began to receive press releases from various environmental organizations crediting the rise of renewable energy and/or the campaigns to divest investments from fossil fuels for the decline in the U.S. coal industry.

A press release from declared Peabody’s bankruptcy “A harbinger of the end of the fossil fuel era.” While I applaud a transition away from coal, these organizations are falling all over themselves to give credit to everything except the primary culprit behind the demise of the U.S. coal industry, which is natural gas (as I demonstrate below). In fact, many of these organizations have circulated stories — usually from those with clear vested interests — intended to discredit the indisputable role that natural gas has played. So let’s take a closer look. 

Taking Undue Credit 

There are in fact a number of reasons for the U.S. coal industry’s troubles, but the biggest factor is displacement of coal by natural gas in the power generation sector. The shale boom created a surge in U.S. natural gas production, and natural gas prices have in turn become depressed. Environmental regulations have also been passed that require power producers to reduce greenhouse gas emissions. Natural gas produces a lot less carbon dioxide per unit of power produced than does coal, so this combination of abundant natural gas supplies, low price, and environmental regulations has caused a pretty dramatic shift in the power markets over the past decade.

Recently the Energy Information Administration (EIA) published a graphic that highlighted the role of natural gas in displacing coal:

EIA Gas Coal

Environmentalists who credit the role of renewables in the coal industry’s woes often emphasize that most new electrical generating capacity lately has been renewables. In fact, in the Federal Energy Regulatory Commission’s (FERC) most recent “Energy Infrastructure Update”, the agency noted that 468 megawatts (MW) of wind power and 145 MW of solar power accounted for 100% of new electrical generation capacity brought into service in January 2016. FERC’s December 2015 “Energy Infrastructure Update” revealed that renewables were responsible for 64% of all new electrical generating capacity installed last year.

But capacity isn’t production. Coal provides what is known as firm power, which means power that is normally available for transmission as needed. Because renewables like wind and solar power are intermittent, they require much more installed capacity than does natural gas to displace coal power. The capacity factor — that is the amount of power produced divided by the power that would be produced if the power source was producing at full capacity at all times — is around 90% for nuclear power, 70% for geothermal power, and 50-70% for coal-fired and natural gas-fired power. But capacity factors for wind and solar power are much lower.

Thank Natural Gas

This is why, despite the fact that renewables took the lion’s share of new electrical generating capacity installed last year, it was natural gas that seized the largest share of power production from coal utilities. EIA numbers show that between 2014 and 2015, the amount of power generated from coal in the U.S. fell by 226,000 gigawatt-hours (GWh). At the same time, the amount of power produced from natural gas increased by 208,000 GWh.

Renewables, on the other hand, contributed a mere 10,000 GWh year-over-year increase. That’s not nothing, but it’s certainly not a huge contributor to coal’s decline.

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