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U.S. Coal Industry Suffering from Low Natural Gas Prices and Environmental Opposition

By David Gabel | Sat, 08 January 2011 16:40 | 0

The Washington Post has announced that in 2010, not a single new coal-fired power plant was constructed in the United States. This marks the second year in a row in which this has occurred. Coal remains the most abundantly used source of electricity, accounting for half of all power generation. However, a number of factors, such as the economy, lower natural gas prices, and environmentalist opposition, have effectively halted the growth of the coal industry.

Coal is being dumped in favor of natural gas, which due to extensive exploration and production, has a significantly lower price than in the past. Much of the new gas production is in shale rock, which have recently been unlocked due to new technologies. Reserves of shale gas are believed to be vast in North America and elsewhere, rivaling the oil reserves of the Middle East.

America's largest electricity generator, American Electric Power (AEP), plans to turn to natural gas for any additional electrical capacity. The price of natural gas straight from the wellhead stood at about $4.25 per thousand cubic feet in 2010, well below its historic average price. According to a report from Deutsche Bank, if gas prices stay below $6, more plants will be converting from coal to gas.

"Coal is a dead man walkin'," says Kevin Parker, global head of asset management and a member of the executive committee at Deutsche Bank. "Banks won't finance them. Insurance companies won't insure them. The EPA is coming after them...And the economics to make it clean don't work."

But coal is not completely dead yet. Last year, the coal industry managed to kill the climate legislation (cap and trade) in the US Senate, showing it still has a lot of influence in politics and public opinion. Plus, even as it declines, it remains the number one source of electricity in America.

However, the coal industry is under a heavy assault from the Environmental Protection Agency. Starting this year, new EPA regulations take effect to lower greenhouse gas emissions of power plants emitting over 75,000 tons of carbon dioxide per year. Such a rule would force industry to install state-of-the-art emissions controls on new construction in order to obtain the necessary air permits. For a dirty fossil fuel like coal, the added cost of new controls can make it economically prohibitive, accelerating the conversion to natural gas.

Fights among lawmakers and in the courts can be expected as the new regulations begin to take effect. Many Republicans plan to block or hamstring the EPA's efforts. Nevertheless, overall demand for coal power is decreasing in the United States. From 2000 to 2008, 19 new coal-fired plants were constructed. In 2010, plans to build 38 new plants were abandoned, and an additional 48 plants were mothballed. For the sake of the environment, let's hope this trend continues.

By. David Gabel

Source: Environmental News Network

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