Why natural gas may become the fuel of choice in this coal state

In coal-loving Kentucky, Obama's climate regulations and the cheap price of natural gas are making the fossil fuel an appealing alternative to coal, writes Andy Tully.

Kentucky has long been a coal state, and as such has consistently resisted efforts by the federal government to limit greenhouse gas emissions from its coal-fired power plants.

A year ago the U.S. Environmental Protection Agency (EPA) issued new rules, called the Clean Power Plan, designed to reduce the country's carbon emissions by 30 percent below 2005 levels by 2030. It amounted to the Obama administration’s biggest step yet to reduce emissions from power plants. It allowed states to comply using whatever power system they preferred, but it also threatens to severely curtail coal generation. (Related: The Evolution Of The Oil Weapon)

The rules, which require each state to submit a plan to the EPA, have received nothing but ire from Kentucky, which generates more than 90 percent of its electricity in coal-fired plants.

In fact, long before McCarthy announced the EPA rules, Kentucky passed legislation limiting what its own environmental agency, the Energy and Environment Cabinet, can put in its plan to be presented to Washington. Senate Majority Leader Mitch McConnell (R-KY) has even called for a boycott of the EPA plan. But if Kentucky doesn’t submit a plan, the EPA will impose one on the state.

However, the EPA plan merely calls for emissions reductions, without requiring electricity to be generated from a specific source. Both coal industry groups and environmentalists agree that upgrading coal plants to comply with the EPA regulations would be too costly.

Nevertheless, Kentucky may end up complying with the new rules by default. Like it or not, coal is no longer the inexpensive fuel of choice for generating electricity, thanks to the rise of extremely low-cost gas. Nationwide, coal’s share of the U.S. electricity market was 36 percent in March, down from 42 percent the same month a year ago. (Related: European Oil Companies Throw Coal Under The Bus)

Any region that produces coal is susceptible to the rise of inexpensive gas, and Appalachia is among the areas hardest hit because it is so close the Marcellus shale field, which stretches from New York state into Kentucky’s neighbor, West Virginia, Sherry Orton, an energy analyst at Doyle Trading Consultants in Grand Junction Colorado, told The Australian Financial Review.

 

The Marcellus is the most copious source of shale gas in the United States, and this shows in the price of its gas: It now costs about $1.60 per million British thermal units, about 13 percent below the cost of coal from central Appalachia.

“It’s kind of brutal across the board,” Orton said.

So natural gas is becoming the fuel of choice for generating electricity in many states, including Kentucky, in large part because of the great expense involved in upgrading existing coal-fired plants to reduce their emissions. In fact, more than one-fourth of Kentucky’s coal-fired plants have either shut down already or are expected to be shuttered within the next two years. (Related: US Shale Will Not Bounce Back At Current Prices)

These shutdowns alone mean Kentucky likely will reach the goal set by the EPA regardless of what the state’s political leadership wants. “Kentucky could be well in compliance with the targets” if it replaced the coal power with clean energy sources, Amlan Saha, a vice president at M.J. Bradley and Associates, an environmental consulting group, told Inside Climate News.

And given the price of natural gas, that seems likely.

By Andy Tully Of Oilprice.com

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