The Role of Fracking in the U.S. Utility: Battle of Gas vs. Coal

By Jill Tietjen
President and CEO, Technically Speaking, Inc.
Russell Schussler
Vice President, System Planning,
Georgia Transmission Corporation

For decades, coal was the dominant fuel for electric power generation in the U.S. Although advances in natural gas generation technology allowed natural gas to become increasingly competitive with coal and other generation options, regulatory constraints and market influences drove coal to remain the overwhelming source for baseload power throughout most of the 20th century. However, in the early 21st century the advent of horizontal drilling as an adjunct to hydraulic fracturing (fracking) significantly reduced the price as well as the price volatility of natural gas. These changes, combined with increased environmental regulation for coal-fired generation, have led to natural gas surpassing coal in terms of net U.S. generation.

THE HISTORY OF ELECTRICITY GENERATION IN THE U.S.

Historically, the dominance of coal-fired power generation was enabled by two factors: (1) the increasing efficiency of power plants over time and (2) the abundance of local coal supply. Generating units were no larger than 150 MW from the 1930s through to the mid-1950s. By 1975, however, due to technological advances, 1300-MW generating units were developed and installed —increasing in generating capacity magnitude by almost a factor of 10 as well as significantly improving energy efficiency.1 The costs of electricity production declined as each new generating unit was installed. With coal basins located throughout the continental U.S. and Alaska, coal was easily accessible, available, economically priced, and readily stockpiled.2

A coal-fired power plant.

The Middle East oil embargo in the early 1970s, ensuing economic conditions including rampant inflation, the Powerplant and Industrial Fuel Use Act of 1978, and the accident at the Three Mile Island nuclear plant in 1979 meant that the installation of new electric generating facilities no longer led to decreases in electric rates. In addition, electric consumption stopped growing at a dependable annual rate of 7%. These events in the 1970s laid the foundation for the changes in electric generation mixes that are now observed in the 21st century.

According to data from the Energy Information Administration (EIA) of the U.S. Department of Energy (DOE), coal provided about 47% of the total electricity generated (see Figure 1) in 1949. Coal reached its peak level of power production in 1988, providing almost 57% of all electricity produced. In 1949, power that was not produced using coal as a fuel source was primarily generated by conventional hydroelectric power, petroleum and its derivatives, and natural gas. Nuclear power made its debut for electric power generation in 1957. Other sources—including wood, waste, geothermal, solar/photovoltaics (PV), and wind—generated electricity at significantly lower levels than coal, natural gas, or nuclear.3

FIGURE 1. Historical net electricity generation (electric power sector only), 1949–2015.

USING COAL AS A FUEL SOURCE

During the 19th century, coal was the major fuel that enabled the U.S. to evolve from an agricultural society to a world economic power. In the early 20th century, coal was used primarily as a raw material to power the nation’s industrial and transportation sectors and for home heating, although Thomas Edison used coal to fire the first electric power generation station in 1882 in New York City.4

The major expansion of the U.S. electric utility systems occurred from the 1960s through the 1980s. During that time, coal was the primary fuel for baseload generation and coal production nearly doubled from 1970 to 1990.4 For a long period, larger, more efficient coal additions were aligned with efforts to improve both the economy and the environment. Coal as a fuel for electricity generation remains plentiful. The EIA estimates that, at the 2014 consumption rate of about one billion tons, known coal reserves in the U.S. will last for more than 250 years.5

T. A. Smith Natural Gas Station. (Courtesy of Oglethorpe Power Corporation)

NATURAL GAS AS A GENERATION FUEL

As demand for electricity grew throughout the late 1900s, natural gas was not the preferred fuel choice for several reasons. The 1978 Powerplant and Industrial Fuel Use Act (FUA) prohibited the use of natural gas and oil as the primary fuel in electric utility power plants or large industrial boilers. Although these restrictions were eliminated with the repeal of the FUA in 1987,6 the price level of natural gas, restrictions on its availability during the winter season, and its significant price volatility precluded its use for baseload generation.

The first public use of natural gas for electric power generation occurred in 1939/1940 in Switzerland. The first natural gas combined-cycle unit began operating in 1961 in Austria.7 Advances in materials and technology included the development of aeroderivative gas turbines that significantly improved operational efficiency versus previous gas turbine models.8 Aeroderivative gas turbines are compact, using lighter weight designs (originally developed for aviation use); with high efficiency and fast-start capabilities, they are well suited for power generation.9 Pairing these turbines with heat recovery steam generators led to today’s natural gas combined-cycle units, some of which offer among the highest efficiencies of any fossil-fuel-sourced generation.

21ST CENTURY CHALLENGES

Increasingly, public and regulatory attention has focused on the environmental impacts of coal-fired generation and coal mining in the years since the passage of the Clean Air Act in 1970 and its later amendments. In fact, some in the U.S. point to a “war on coal”.10 Owners of coal-fired generation have retrofitted or retired power production facilities as a result of actions taken by the U.S. Environmental Protection Agency (EPA). In addition, the global focus on climate change and concomitant efforts to reduce coal-fired power plant emissions have resulted in all decisions concerning coal-based electric generation receiving significant scrutiny.

The regulations issued by, or actions of, the EPA affecting ozone, sulfur dioxide (SO2), nitrogen oxides (NOx), particulate matter (PM), ash disposal, water, mercury, and carbon dioxide (CO2) emissions have impacted the cost competitiveness of coal-fired units more than natural gas-fired units, as emissions from natural gas are significantly lower than from coal. Many coal-fired generating units were retrofitted to comply with these regulations and experienced associated increases in capital, operating, and maintenance costs, while the additional cost requirements pushed other units into retirement. The Clean Power Plan (CPP), currently being adjudicated, would further reduce coal’s competitiveness and accelerate the retirement of additional coal facilities.

FRACKING

The advent of fracking significantly increased the amount of economically recoverable natural gas and oil. Very similarly to coal basins, shale deposits are widespread in the U.S. with significant formations now etched into the public’s mind in North Dakota (Bakken), Pennsylvania (Marcellus), and Texas (Barnett and Eagle Ford).11

The Marcellus Shale and Bakken Formation became producers of oil and natural gas through the advancement of fracking. As a result, domestic crude oil and natural gas production has increased significantly in the U.S. in the last decade, as shown in Figure 2. In conjunction with that increase, the price of natural gas has also decreased to a level that makes it competitive with coal for baseload generation.12

FIGURE 2. U.S. dry shale gas production.

This increase in production and domestic availability has also reduced the volatility historically associated with natural gas prices. Of geopolitical importance, the U.S. is now an exporter of oil, can produce enough natural gas for energy independence, and is exporting liquefied natural gas.13,14

LOOKING TO THE FUTURE

Much current rhetoric touts that renewable energy (generally referring to solar and wind but ignoring hydroelectric power) will become the primary energy source for electricity in the near future. However, electric professionals as well as the U.S. federal government forecast that nuclear, coal, and natural gas resources will be required to provide a reliable electricity grid for the foreseeable future.15 These are so-called “dense” energy sources and the spinning turbines associated with these generation technologies provide the inertia that the power system needs to be stable, especially as renewable resources become a larger percentage of the generation mix. A, 16

The EIA’s 2016 Annual Energy Outlook forecasts that coal will provide 21% of total electricity in 2030 and 18% in 2040, with total coal production of approximately 640 million tons in 2040 (see Figure 3).15 In the face of slowing growth in electricity use (less than 1% per year), natural gas is projected to provide 38% of the total electricity produced in 2040, while nuclear will provide about 16%.15,17

FIGURE 3. Electricity net generation.

CLOUDY CRYSTAL BALLS

Projections for the future need to be made with humility and interpreted with caution. In the not-too-distant past (the 1970s), there was a belief that the world was entering a new Ice Age.18 Around that same time, it became illegal to build electric power generation fueled primarily with natural gas or oil. Also in that era, solar and wind technologies were in development but much too expensive for either utility-scale or individual consumer application. In the 1990s, it was accepted that the “gas bubble” would break and that natural gas, besides being unable to support baseload generation, would become too costly to power intermediate generation.19 There were serious concerns that natural gas combined-cycle plants would become far too expensive to operate. Justifications for natural gas combined-cycle plants were supported by backup plans showing that they could be converted and powered by gasified coal when natural gas became too costly.

Fracking site.

Today, concerns about global climate change have led to calls for the reduction of emissions from fossil fuels, including coal. The results of the earthquake and tsunami affecting the Fukushima Daiichi nuclear power plant in Japan have led to projected and actual changes in the use of nuclear power around the world. Utility planners have learned that their crystal balls can be quite cloudy. The forecast is always wrong—the only issues are in which direction and by how much—and these factors only become obvious in retrospect. Planning for future generation sources thus requires flexibility that reflects mindfulness of the abrupt changes that can take place underlying pricing and availability of any fuel source.20 Good planning results in solutions robust enough to adjust to the differences between forecasts and reality.

As the 21st century unfolds, the roles of natural gas and coal may well take unforeseen twists due to developments in areas such as clean coal technology or environmental regulations impacting natural gas, nuclear power, or renewable technologies. Lastly, it should be noted that this article has focused on U.S. generation. The availability and infrastructure for natural gas generation is lacking in many other parts of the world, particularly some developing countries. Under current conditions worldwide, coal-based generation in many cases will be the superior option considering developmental needs, economics, and the environment.20,21

CONCLUSION

Although coal-fired generation dominated the electricity market for many decades, the advent of fracking has led to an abundant domestic natural gas supply with low and stable prices that are competitive with coal prices. With the technological advances in gas turbines and combined-cycle units, natural gas-fired generation has become economically competitive with coal and produces lower emissions. Increasing regulations associated with clean air, clean water, and global climate change are also increasing the costs to build, operate and maintain, and fuel coal-fired generation. Nevertheless, both electric utility professionals and the U.S. federal government project that, by 2040, coal will still be providing about 20% of the total electricity requirement in the U.S. That level of generation will require the mining of over 600 million tons of coal. Although natural gas will replace coal as the dominant fuel, coal and nuclear power will still be required to supplement the baseload demand requirements of customers throughout the U.S. With demand for electricity increasing in other countries around the world, many of which may not have the infrastructure to support natural gas generation, coal-based generation may still be required globally due to the economic and environmental needs of the developing world.

NOTES

  • A. The denser the energy resource the more energy that can be produced in a smaller space. Example power densities include: wind – 1 watt per square meter; solar – 6 watts per square meter; natural gas – 28 watts per square meter; nuclear power – 50 watts per square meter.16

REFERENCES

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  3. EIA. (2016, 26 August). Monthly energy review (DOE/EIA-0035). Table 7.2, Electricity net generation, www.eia.gov/totalenergy/data/monthly/
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  8. Hunt, R.J. (2011). The history of the industrial gas turbine (Part I The first fifty years 1940–1990). Publication 582, The Independent Technical Forum for Power Generation. Morpeth, UK: The Institution of Diesel and Gas Turbine Engineers, www.idgte.org/IDGTE%20Paper%20582%20History%20of%20The%20Industrial%20Gas%20Turbine%20Part%201%20v2%20(revised%2014-Jan-11).pdf
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  18. (2103, 21 May). The 1970s Ice Age scare, stevengoddard.wordpress.com/2013/05/21/the-1970s-ice-age-scare/
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  21. Mann, T. (2016, 18 August). General Electric gets bullish on coal – again. The Wall Street Journal, B1–B2.

The authors can be reached at jill.s.tietjen@gmail.com or russell.schussler@gatrans.com.

 

The content in Cornerstone does not necessarily reflect the views of the World Coal Association or its members.
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