Shale gas and US coal

November 25, 2012

There’s an interesting article here about the rapid switch happening in the US’s power generation from coal to gas.  Apparently gas overtook coal in April 2012 and continues to grow rapidly. The savings to consumers are huge – they quote the example of Ohio where combined costs for gas and electricity fell 20% in 2011 vs the 2007-2009 average, which is no doubt helping the US economy.

Coal remains competitive though. An exec of AEP, a giant energy utility in the US, says they begin to turn coal back on when gas prices exceed the $3 to $3.25 range.  As you can see from the futures curve here it’s already above that price at almost $4 and predicted to rise only gradually, reaching $5 around 2018.

With natural gas so cheap and gasoline so expensive in the US, I’ve often wondered why US consumers and car companies aren’t switching to natural gas (via LPG) for their cars. In Malaysia, most taxis run on LPG. But that cuts power by 10% or 20%, reduces range (LPG is less energy dense than gasoline) and half of the boot (trunk) is taken up by a huge gas cylinder. And of course you need the refueling infrastructure. Even in Malaysia the petrol stations that do stock LPG often have long queues of taxis.

Perhaps the switch from gasoline to natural gas in cars will come instead through all-electric and plug in hybrid cars. Personally I think electric cars are a non-starter because of the range limitations. Everybody likes the occasional road trip. But plug in hybrids solve that, and you get to buy most of your fuel at electricity costs. Thus the automotive industry moves to natural gas via electricity.  If this happens, plenty more gas power stations will be needed unless everybody can be persuaded, via dynamic pricing, to only charge their cars overnight.  This is, to me, the real reason for the push to smart metering. 

The switch to natural gas from coal at the generation end is rapid and happening now. But the automotive switch from oil to natural gas will take much longer. Will that demand reduction in oil, mostly in cheap gas USA and not in expensive gas Asia, be enough to balance the huge oil demand increase forecast in Asia? World oil production seems to have almost platueaud. Eventually I guess shale gas technology will spread, although the US appears to have better geological conditions for it than elsewhere.

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