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King Coal Gets Fracked

Once every century or so, a technological breakthrough transforms the way electricity is generated and delivered to an industrial civilization that voraciously devours it.

Such was the case on September 4, 1882, when Thomas Edison switched on his Pearl Street generating station’s electrical power distribution system and provided 110 volts of direct current to 59 customers in lower Manhattan.

Another Eureka moment occurred on December 20, 1951, when electricity was generated for the first time by a nuclear reactor at the EBR-I experimental station near Arco, Idaho. The unit initially produced about 100 kW (and no, we don’t know if this development had anything to do with the Mayans pegging December 21 as their official End Of The World date).

Edison’s achievement is universally recognized as a giant leap forward for mankind. The benchmark in Idaho, not so much, at least if we pay attention to post-Fukushima Japan.

As this is being written, the Japanese government is anxiously trying to convince the island nation it’s not economically feasible to write off nuclear power forever. The Japanese people remain unconvinced: a year after the earthquake and tsunami, all of Japan’s reactors remain in shutdown mode, with the exception of a huge pile of smoldering spent fuel rods at Fukushima that still menaces a large swath of the Pacific coast.

But when historians look back at 2012, they’re likely to identify the present as the time when the Natural Gas Era dawned in the U.S. and the sun slowly set on the reign of King Coal.

The technological breakthrough of hydraulic fracturing–a.k.a. fracking–has enabled drillers to pull so much natural gas out of deep shale deposits that the U.S. will run out of storage space for the gas before the end of the year. The price of natural gas has plunged from about $14 per million British Thermal Units three years ago to today’s ultra-cheap level of $2.

In one of those great coincidences that history likes to throw at us, the natural gas bonanza has come at the same time that the coal industry is facing a regulatory crossroad which could force utilities across the nation to decide the fate of a large percentage of the coal-fired electric power plants in the U.S.

The federal Environmental Protection Agency aims to make 2015 the year when all power plants must comply with tougher Mercury and Air Toxic Standards (MATS) and a new Cross-State Air Pollution Rule. The EPA is expected to finalize the new rules before the end of the summer. In the run-up to the new emissions standards, utilities have been mulling huge investments to retrofit aging coal-fired plants with expensive pollution-control equipment; an alternative is to double down on coal by spending billions to build new “clean coal” power plants.

As if that isn’t challenging enough, the EPA recently upped the ante, proposing an outright ban on the construction of any new coal-fired power plant that releases all of its carbon dioxide into the atmosphere. At the same time, the federal Department of Energy is pushing ambitious plans to build humongous carbon sequestration storage facilities in old salt mines and depleted oil fields.

Until recently, the conventional wisdom went something like this: yeah, the polar ice caps are melting and we didn’t have a winter this year, but coal is the cheapest fuel, we have a 400-year supply of it, our economy depends on it and we’re going to be using it for decades so let’s clean up the emissions as much as we can and bury the rest of them underground until we can come up with a better solution.

Well, ultra-cheap, abundant and much cleaner natural gas–it produces almost no harmful toxins, already meets the EPA’s proposed 2015 emissions standards and dramatically reduces the carbon footprint of the average power plant–appears poised to bury the conventional wisdom. The market has spoken and it’s speaking volumes, as in metric tons.

It’s becoming as clear as a smog-free day to many major electric utilities that cleaned-up coal-fired plants will not be highly profitable in a world of $2 natural gas. It’s certainly clear to the investment banks that would have financed an industry-wide conversion to cleaner coal.

So the cascade of coal-fired plant closings has begun. The past two years have seen the closing or announced closing of more than 100 older coal-fired power plants. In many cases, plants that were scheduled to be shuttered after the 2015 rules take effect are being mothballed today.

One example is Dominion, which had originally planned to close its State Line Power Station near Chicago at the end of 2014 rather than upgrade to comply with tougher environmental regulations, but bumped up the date to this spring because it could no longer compete with natural gas.

Even before the proposed EPA greenhouse gas rules were announced, experts said it was extremely difficult to obtain financing for new coal plants. Ground has been been broken on just one new coal plant since 2008; last fall, the new Spiritwood Station coal plant with state-of-the-art pollution controls in North Dakota was taken off-line just after completion because Great River Energy said it could not run it profitably.

Unfortunately, historic upheavals of this magnitude usually don’t happen without some unintended consequences. Here are a few warnings worth pondering (yes, they’re from our friends in coal country) as we herald the arrival of the Natural Gas Era:

Coal industry proponents say the rapid closing of coal plants will mean energy shortages and/or rate increases in coming years. New natural gas plants will not be built quickly enough to pick up the slack, they argue, especially if the price of natural gas rises from the current cost of $2 per million BTUs to $7 by 2035, as the Energy Information Administration (EIA) has projected.

“Just given the history of volatility in the natural gas markets, there is some residual concern,” said Jeffrey R. Holmstead, a former assistant EPA administrator who now heads the Environmental Strategies Group at the public relations firm Bracewell-Giuliani, which advocates for the coal industry.

“I think everybody believes that natural gas prices will go up from where they are today,” he said. “One of the big issues with the EPA rules is that with all these coal plants coming off-line in 2015, even if natural gas prices are reasonable we just don’t have the pipeline capacity to get it where you need it.”

Holmstead and others have raised concerns that new pollution rules will lead to power outages, but the EPA has maintained reliability won’t be compromised.

The EIA, meanwhile, predicted in 2011 that at least 216 gigawatts of generating capacity will be added by 2035, compared to 42 gigawatts of coal power going off-line in coming years. The agency projected that the share of electricity generated by natural gas will only increase from 2010′s level of 24 percent to 27 percent by 2035, while renewables (including hydro) will increase from 10 to 16 percent and coal’s share will fall from 45 to 39 percent. But this was before the proposed EPA rules on greenhouse gas emissions, which could prevent new coal plants from getting off the drawing boards.

Industry analysts also say that the rapid embrace of natural gas by the electric power industry has probably driven a stake through the heart of DOE’s ambitious carbon-sequestration program. Natural gas is so cheap and plentiful that utilities have little incentive to build plants with the required carbon capture technology.

The first casualty among carbon capture initiatives may be the Taylorville Energy Center, a project in the coal fields of Illinois. The plan was to cook coal into methane, capture the carbon dioxide released in the process, then burn the methane in a conventional natural gas-style power plant. But Taylorville’s backers, unable to persuade the state legislature to approve the project because of its estimated $3.5 billion price, are considering deferring the coal element and simply building the gas-burning plant for one-third the cost.

Making synthetic natural gas from coal makes economic sense only if the ordinary natural gas that it displaces is more expensive.

Edwardsport, a “capture-ready” Duke Energy coal plant, is scheduled to begin commercial operation this year. The Indiana plant will cook coal into a fuel gas and could be retrofitted to capture carbon dioxide released in that conversion. But Duke, the builder, has no plan to capture the carbon dioxide and no place to sequester it for now. It is exempted from the new rule because construction began five years ago. The plant cost nearly $3 billion to build and carbon capture would cost $380 million, not counting storage.

Only two other major carbon capture projects are moving forward in the U.S., but neither is said to be affected directly by low natural gas prices.

FutureGen 2.0 is a $1.6-billion plan to burn coal in oxygen, generating exhaust gas that is pure carbon dioxide and pumping it into geologic formations thousands of feet below the earth’s surface. Stimulus funding is covering $1 billion of the cost of the project, which is in Meredosia, IL. But the pilot plant, originally expected to be running by 2015, has run into a variety of bureaucratic problems and is now scheduled to be in service no sooner than 2017.

Southern Company’s Kemper County project in Mississippi will turn coal into a cleaner gas and use it to power a turbine. The captured carbon dioxide is expected to be sold and travel through a pipeline to Texas, where it will be pumped under ground to force oil out of old oil fields, a process known as enhanced oil recovery. The high price of oil makes the project viable–the plant is scheduled to start operating in 2014.

Ironically, the EPA may turn out to be the agency that eventually levels the playing field between coal and natural gas. At the same time it is pushing for tougher air pollution and greenhouse gas standards, EPA is putting the fracking industry on notice that it intends to strictly regulate the industry’s disposal of water tainted with toxic chemicals that is blasted horizontally into shale deposits to force out the natural gas.

As the expansion of fracking moves drilling operations closer to underground aquifers and reservoirs (the entire reservoir system that supplies water to New York City lies within the Marcellus Shale formation), you can expect to hear a lot more public discussion about “flowback,” accompanied by YouTube footage of people setting fire to their tap water in shale-rich regions.

At some point, the debate may be distilled to its essence: do we want cleaner air and a marginal delay in the impending reckoning of climate change or do we want clean water? Pick your poison.

But if the economy continues to struggle, we suspect the answer will be “we want jobs.” Whatever produces the cheapest electricity will wear the crown as America’s energy king.

 

 

 

 

 

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