Guest post by David Middleton

From Inverse via Real Clear Energy:

The Answer to What’s Actually Killing Coal is Hopeful and Depressing

The real cause of the decline of coal is the free market.

By Dyani Sabin on June 20, 2017
Filed Under Answers, Donald Trump, Jobs, R&B & Solar Energy

As has been reported a lot recently, the coal industry is dying: jobs are in decline as alternative energy sources are more easily available to the masses, and everything from windows to roofs has become more energy efficient. So while technology is killing the coal industry, so are competitors of coal, which still accounts for an astounding 40 percent of electricity worldwide.

Enter a study paid for by two environmental groups — the American Wind Energy Association and Advanced Energy Economy — and conducted by Analysis Group, a consulting firm, timed to come out ahead of a competing Department of Energy study, and the stage is set to answer the question: What is killing coal? The answers will either be depressing (business-killing policies!) or hopeful (better tech and market competition), or perhaps both.

First up, the private study results released Tuesday found that the decline of coal and nuclear plants in the United States has two main causes: the relatively low cost for natural gas, and the fact that electricity demands have not increased.

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The answer is: Both.  So their conclusion that “better tech and market competition” and not “business-killing policies” are killing coal, “isn’t even wrong.”

The levelized capital costs for conventional coal-fired power plants ranged from $2,800 to $3,200 per kW in 2010.  By 2014, the EIA estimated that the levelized capital costs of coal-fired power plants entering service in 2019 would be $6,000 per kW.  In the EIA’s most recent LCOE (levelized cost of electricity) analysis, they don’t even include coal-fired power plants without CCS (carbon capture and storage).  The levelized capital costs of coal-fired power plants with CCS entering service in 2022 will be $7,800 to $9,500 per kW.  Almost all of the increase from $3,000 to $9,500 per kW is due to “business-killing policies”… Or planet-saving policies to warmunists.

Setting aside the fact that “business-killing policies” have definitively driven the cost of coal-fired power plants up to noncompetitive levels, they are correct that “the relatively low cost for natural gas” really hurt the coal industry.  The brief plunge in gas prices below $2.00/mcf in 2016 was the “straw that broke the camel’s back” for the largest US coal company, Peabody Energy.

One of the more telling moments during Tuesday’s interview came toward the beginning, when Kellow was summarizing the events around Peabody’s descent into chapter 11. He noted that, around the same time, U.S. natural gas prices hit a low of $1.67 per million BTUs. He was off by a few a cents — as he acknowledged he might be — at least according to Bloomberg data. Whatever; the point is that the CEO of a coal-mining company who quotes historical natural-gas prices down to the cent clearly knows the enemy.

As I’ve written here and here, the shale boom fracked the ground from underneath the U.S. coal sector. The industry simultaneously self-administered a coup de grâce in the form of ill-timed acquisitions, loading up with debt just as the market went south. President Barack Obama’s tightening of the regulatory screws on coal-fired power essentially closed the door on any revival.

Bloomberg Gadfly

Apparently the geniuses at the “two environmental groups” haven’t been “keeping up with current events.”

VIDEO

Natural gas prices are currently in the neighborhood of $3.00/mcf (more on this later).

Back to the Inverse article:

It’s not that renewables have become so cheap that they’re killing coal, it’s that our technology has improved so natural gas is having an economic renaissance. It was the financial pressure from natural gas costs, which dropped and stayed low starting in the early 2000s, that delivered coal’s death blow.

Inverse

Wow!  They managed to be “not even wrong” twice in one article!

“It was the financial pressure from natural gas costs, which dropped and stayed low starting in the early 2000s, that delivered coal’s death blow.”

AEUHHH????

Natural gas “costs” skyrocketed from 2000-2009…

Natural gas prices rose sharply from 2000-2009. The combination of the financial collapse and subsequent no-growth economy coupled with an over-supply of natural gas due to the shale boom caused a collapse in natural gas prices. When natural gas is below $2.50/mcf coal is noncompetitive. However, at prices above $3.00/mcf. coal becomes increasingly profitable.  (Bloomberg Gadfly, US EIA)

The “death blow” to coal occurred in 2009, when natural gas prices collapsed:

US coal production began to collapse in 2009 due to the collapse in natural gas prices. Coal’s recovery from this “death blow” is already underway. (US EIA, US EIA)

In the Energy Information Administration’s reference case, natural gas prices are forecast to rise to about $4.50/mcf by 2020 and climb above $5.00/mcf by 2030.  Coal is extremely competitive with natural gas in EIA’s reference case.  It’s even competitive in the “high oil and gas resource technology” scenario.

Natural gas prices are not expected to remain in coal’s “death blow” range. (US EIA)

Unless “death blows” have a recovery rate comparable to extinct Central American toads, Inverse’s “answer to what’s actually killing coal” isn’t even wrong.  The same market forces that caused the coal industry to decline over the past decade are already leading to its recovery (The Resurgence of the American Coal Industry, The Resurgence of the American Coal Industry, Part Deux: An Unexpected Ally)

To paraphrase Samuel Clemens: “The reports of coal’s death are greatly exaggerated.”

Chapter 4. Coal

Overview
In the IEO2016 Reference case, coal remains the second-largest energy source worldwide—behind petroleum and other liquids—until 2030. From 2030 through 2040, it is the third-largest energy source, behind both liquid fuels and natural gas. World coal consumption increases from 2012 to 2040 at an average rate of 0.6%/year, from 153 quadrillion Btu in 2012 to 169 quadrillion Btu in 2020 and to 180 quadrillion Btu in 2040.

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U.S. EIA

Global demand for coal will continue to rise for decades, creating export opportunities for US coal companies. (US EIA)