Natural gas, which surpassed coal’s share of domestic power generation for the first time ever last spring, is likely to make 2016 the first year that gas-fired generation exceeds coal generation in the United States on an annual basis, according to the Energy Information Administration (EIA).
Natural gas became the leading fuel for domestic power generation for the first time in April 2015 and established itself as the leading fuel for electricity for the second half of the year (see Daily GPI, Dec. 28, 2015; Dec. 2, 2015; Oct. 28, 2015). Generation shares for natural gas and coal were nearly identical in 2015, each providing about one-third of all electricity generation, EIA said Wednesday. The agency expects natural gas to provide 33% of electricity generation this year, compared to 32% from coal.
“The recent decline in the generation share of coal, and the concurrent rise in the share of natural gas, was mainly a market-driven response to lower natural gas prices that have made natural gas generation more economically attractive. Between 2000 and 2008, coal was significantly less expensive than natural gas, and coal supplied about 50% of total U.S. generation. However, beginning in 2009, the gap between coal and natural gas prices narrowed, as large amounts of natural gas produced from shale formations changed the balance between supply and demand in U.S. natural gas markets,” EIA said.
“Coal and natural gas generation shares over the past decade have been responsive to changes in relative fuel prices. For example, particularly low natural gas prices throughout much of 2012 following an extremely mild 2011-12 winter led to a significant rise in the natural gas generation share between 2011 and 2012, often displacing coal-fired generation.
“With higher natural gas prices in 2013 and 2014, coal regained some of its generation share. However, with a return to lower natural gas prices in 2015 favoring increased natural gas-fired generation, coal’s generation share dropped again.”
Environmental regulations affecting power plants have played a secondary role in driving coal’s declining generation share over the past decade, EIA said.
“Looking forward, environmental regulations may play a larger role in conjunction with market forces. Owners of some coal plants will face decisions to either retire units or reduce their utilization rate to comply with requirements to reduce carbon dioxide emissions from existing fossil fuel-fired power plants under the Clean Power Plan, which is scheduled to take effect in 2022 but has recently been stayed by the Supreme Court pending the outcome of ongoing litigation” (see Daily GPI, Feb. 10).
Electric power demand for natural gas increased from 22.32 Bcf/d in 2014 to 26.5 Bcf/d in 2015, according to EIA (see Daily GPI, March 8a). The agency expects power demand for gas to reach 27.29 Bcf/d in 2016 before falling slightly to 26.82 Bcf/d in 2017.
Nearly 80% of the 18 GW of electric generating capacity retired in the United States last year was coal-fired units, according to EIA (see Daily GPI, March 8b). While utilities retired more than 14.59 GW of net summer coal-fired generating capacity over the course of 2015, they added 6.57 GW of natural gas-fired capacity, EIA data shows. In 2016, utilities are expected to add another 7.76 GW of net gas-fired generating capacity, while 5.57 GW of coal-fired capacity is expected to go offline during the same period.
Despite the uncertainty created by the Supreme Court’s decision to temporarily block the Clean Power Plan, some of the nation’s largest electric utilities predict their industry would not be dissuaded from retiring coal for power generation and would continue to embrace natural gas and renewables (see Daily GPI, Feb. 11).
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