Natural gas prices have been on the rise in 2013. One of the major contributing factors for the rise, and one that will push gas prices even higher in the years ahead, has been singled out by Money Morning Global Energy Strategist, Dr. Kent Moors a number of times…
That factor is the switch by electric power companies from coal-fired electric generation to natural gas-fired generation. More than 9,000 megawatts of coal-fired generation were retired in 2012 alone.
The switchover is occurring because of two main reasons.
The first reason is how low natural gas prices are – even though the switch is causing a price climb.
The second is that burning natural gas is about half as polluting as burning coal.
This is a key point considering the upcoming imposition in 2016 by the Environmental Protection Agency (EPA) of non-carbon emission standards covering pollutants such as mercury, sulfurous oxide and nitrous oxide.
The change in the mix of fuels used by electric utilities can be illustrated by the example of the Southern Company (NYSE: SO), which provides power in the Southeastern United States.
Back in 2008, Southern produced 70% of its electricity from coal. Last year, that figure dropped to about half that amount.
In 2007, natural gas accounted for between 10-12% of Southern's energy. The company expects that number to reach 47% in the future.
Natural Gas Prices Fuel Coal Retirements
Right now coal power plants account for about 318 gigawatts (1 gigawatt=1000 megawatts) of electric generation, which is equal to about 30% of the U.S. total of 1,051 gigawatts.
Such power plants provided about 37% of the country's power supply last year, down from 42% in 2011. Coal generated more than half the nation's power as recently as 2003.
But that coal power generation number is likely to drop drastically in the years ahead.
U.S. utilities have either already retired or have plans to shut down or convert more than 50,000 megawatts of coal-fired generating capacity over the next several years.
Reuters quotes various industry estimates as eventually expecting shutdowns of between 60,000 and 100,000 megawatts of coal-fired generating capacity.
Moors says that at least 90,000 megawatts of coal-generated power plants will be shut down by 2020, with an additional 20,000-30,000 megawatts possibly shutting down specifically to meet the EPA regulations.
Standard & Poor's stated that approximately two-thirds of the U.S. coal-powered fleet is more than 40 years old and must either be retired or undergo costly retrofitting.
An article in the Washington Post stated that as much as 65% of the U.S. fleet of coal power plants could be under threat in the years ahead from the EPA pollution standards and cheap natural gas. The Post story cited a study by three researchers at Duke's Nicholas School of the Environment, which analyzed operating costs at various power plants around the country.
The study found that, thanks to low natural gas prices, 9% of the nation's fleet of coal-fired power plants has already become uneconomical to run. These plants are already on the retirement list.
But the real kicker is the effect that the 2016 EPA regulations will have on the power industry…