Gas, a “bridge fuel,” controls American power regardless of cost.
Gas| Increased coal production is typically a result of rising natural gas prices. However, 2022 is not usual.
As they ratchet up electricity output at U.S. gas plants, which are producing 7% more power through September compared to last year, power firms are ignoring the highest gas prices in more than a decade. In comparison, coal production is down 8%.
The peculiar dynamic is a reflection of America’s energy transformation. Long considered the fuel that will link a time of diminishing coal use to a future dominated by renewables, gas has this reputation. The United States is currently stranded in the centre of that bridge, unable to fully realise the potential of clean energy or go back to coal following the retirement of power plants for ten years .Analysts claim that this leads to a rigid reliance on gas, regardless of its price.
According to Ira Joseph, a veteran gas and power analyst, “the retirement of coal facilities along with the drought impact on hydro has left the reserve capacity margin narrow in a number of locations and that has left a lot of reliance on gas.”
Power prices have increased as a result. Residential electricity rates will rise by 7% nationwide, according to the US Energy Information Administration, while hikes may be more in areas with a high reliance on natural gas. In New England and New York, which no longer produce any coal and have small renewable fleets, wholesale electricity rates are predicted to rise by 96% and 124%, respectively, this year.Reduced greenhouse gas concentrations are another benefit. According to Carbon Monitor, a research project that measures emissions in real time, through July, carbon dioxide production from U.S. power plants was down 1.7%, which helped to offset an increase in emissions from transportation.
The current reliance of America on gas reflects the instability of the American electricity markets. Since the turn of the century, coal’s dominance as a fuel source in America has declined. Due to a mix of ageing, environmental regulations, and economic pressure, older facilities were shut down. New combined cycle gas plants, which emit less pollution and are powered by a vast supply of natural gas, replaced them. Gas prices were cut by fracking by taking advantage of the abundant subsurface supply.In the past, a little change in gas costs might trigger significant changes in the way that electricity is produced. Gas generation decreased and coal generation increased as gas prices rose beyond $3 per million British thermal units.
But this year, that hasn’t happened.
In 2022, gas prices increased to an average of over $4 per mm BTU and have been above $7 since May. However, electricity firms keep using more gas.
According to EIA statistics, the 1,117 terawatt hours of gas generation reported up through September 16 exceeded the amount of gas used during that time period in any of the three years before. Meanwhile, the price of coal keeps falling. The generation decreased from 686 TWh at this time last year to 630 TWh at the end of the previous week. The reduction is particularly noteworthy because it comes after an American summer marked by intense heat waves. In the past, coal production has increased in warmer months to accommodate increased demand for electricity.
Enrique Gonzalez, a Bloomberg NEF analyst who follows the gas and electricity industries, said: “The statistics this summer were quite awful.” Given our increased coal needs, you could anticipate higher output.
More availability, more demand
Long-term reduction in coal use was already present. As utilities rapidly shut down facilities over the past ten years, the capacity of the U.S. coal fleet decreased by 45 percent. According to Gonzalez, power firms are currently hesitant to sign long-term coal contracts. Coal firms are now reluctant to spend money on new mines or the expansion of current ones. As a result, coal output has stalled despite rising gas costs.
The epidemic has just exacerbated the issues with coal. According to federal employment data, mine employment has not increased since the industry lost over 8,000 employees in 2020.
Meanwhile, inadequate rail capacity has reduced current exports, according to Andy Blumenfeld, an analyst who monitors the coal sector at McCloskey by OPIS.
Some of the coal train cars that were kept in storage at the start of the epidemic were demolished, while others required lengthy repairs, according to Blumenfeld. These transportation issues have become worse as a result of the railways’ labour difficulties, which narrowly prevented a walkout last week.
The outcome has been a sharp reduction in coal stocks at utilities.
According to EIA data, the 87 million tonnes utilities had on hand in June are 33% less than the 130 tonnes five-year average. In order to ensure they have enough coal to meet peaks in demand, several utilities have been preserving it, according to Blumenfeld.
We believe that this conservation will continue until next winter since the utilities are concerned about coal stocks, he added. Renewable energy is booming, whereas coal has suffered. According to EIA statistics, wind and solar energy output reached 406 TWh through September 16, up 20% from the same period in 2021. However, just 13% of the nation’s total electricity is produced by renewable sources. As older reactors are deactivated, nuclear production has slowly decreased in recent years. The amount of hydro produced is significantly more than in 2021, although it is still less than in 2020.
Though some mix of fossil fuels, batteries, or other dispatchable technologies may be required to patch over lulls in renewable power, experts said, the deployment of additional renewables will eventually reduce the need on gas.