NATURAL GAS TO OVERTAKE COAL IN POWER GENERATION BY 2040: EIA

Karen Frantz
GHG Monitor
12/20/13

Natural gas is set to overtake coal as the largest source of U.S. electric power generation by 2040, the Energy Information Administration said in its Early Release Overview of the Annual Energy Outlook 2014, released this week. “Projected low prices for natural gas make it a very attractive fuel for new generating capacity,” the overview said. “In some areas, natural gas-fired generation replaces generation formerly supplied by coal and nuclear plants. In 2040, natural gas accounts for 35 percent of total electricity generation, while coal accounts for 32 percent. Generation from renewable fuels, unlike coal and nuclear power, is higher in the AEO2014 Reference case than in AEO2013.”

Among the factors set to result in reduced coal use, according to the overview, is “slow growth” in electricity demand; “programs encouraging renewable fuel use and the implementation of environmental rules”; and “market concerns about GHG emissions.”
But the new study also says that projections for coal-fired power generation is higher in the AEO2014 than in the AEO2013 Reference case “because of higher natural gas prices during that period, as well as pending nuclear retirements that necessitate additional baseload generation. After 2020, generation from coal flattens out and remains lower than projected in AEO2013, because more coal-fired capacity is retired and fewer new coal plants are built.”

The study also looks at carbon dioxide emissions through 2040, projecting that energy-related emissions will remain below the 2005 level every year through 2040, with emission levels expected to be 7 percent below the 2005 level by 2040. “In the electric power sector, CO2 emissions from coal combustion decline after 2029 as more power plants are fueled by lower-carbon fuels, including natural gas and renewables,” the study said. “However, the lower level of CO2 emissions in the electric power sector because of the reduced role for coal is partially offset by less projected generation from nuclear power.”

The reference case projections only consider the effects of implemented policies; the full report, which will consider other factors such as world oil prices, new technologies and alternative policy scenarios, is expected to be released early next year.

Coal Prices, Consumption and Production

In the AEO 2014 Reference case, the cost of minemouth coal is projected to grow by 1.4 percent per year, from $1.98/MMBtu in 2012 to $2.96/MMBtu in 2040. “The upward trend of coal prices primarily reflects an expectation that cost savings from technological improvements in coal mining will be outweighed by increases in production costs associated with moving into reserves that are more costly to mine,” the study says. “The upward trend in the minemouth price of coal in the AEO2014 Reference case is similar to the trend in the AEO2013 Reference case, but the average price through the projection period in AEO2014 is generally lower, primarily reflecting a lower price outlook for coking coal.” The average delivered price of coal to all sectors, minus exports, is also expected to increase, although at a slower pace of 1 percent per year, the study says.

The EIA also projects that total primary energy consumption will grow by 12 percent, from 95 quadrillion Btu in 2012 to 106 quadrillion Btu in 2040—although the 2040 projection figure is 1.3 quadrillion Btu less than in the AEO2013. Fossil fuel energy consumption is projected to make up 80 percent of that total by 2040, down from its 82 percent share in 2012. And total coal consumption is projected to increase from 17.3 quadrillion Btu in 2012 to 18.7 quadrillion Btu in 2040. “Coal consumption, mostly for electric power generation, falls off in 2016, the first year of the MATS,” the EIA said. “After 2016, coal-fired electricity generation increases slowly over the next 10 years as the remaining coal-fired capacity is used more intensively, but little capacity is added.”

And U.S. coal production is projected to grow at 0.3 percent each year, from 20.6 quadrillion Btu in 2012 to 22.6 quadrillion Btu in 2040. “U.S. electricity generation accounted for 91 percent of total U.S. coal consumption (in Btu) in 2012,” the study says. “Coal production declined by more than 7 percent in 2012, from 1,096 MMst in 2011, mostly in response to gas-on-coal competition. In the Reference case, production recovers to 1,062 MMst by 2015, in response to a rise in natural gas prices along with a moderate increase in electricity demand. A wave of coal-fired generating capacity retirements in response to MATS requirements coincides with a secondary drop in coal production to 1,022 MMst in 2016. Total production then increases gradually to 1,127 MMst in 2030 before stabilizing as a result of limits on achievable long-term capacity utilization rates for available coal units compared to AEO2013.”