As you’re probably aware, natural gas prices in the United States have plummeted in recent times with the development of hydraulic fracturing, or “fracking.” The controversial, but very effective drilling technique has freed a glut of natural gas from shale rock formations, reducing domestic natural gas prices substantially. Between 2009 and 2011, the wellhead price of natural gas was cut nearly in half, to just under $4,000 for every one-thousand cubic feet. Natural gas has gotten so cheap that it’s actually replacing our other favorite fuel for power generation, coal.
Among the dirtiest of fuels, coal has finally lost its once unshakable edge on price. Today, natural gas is frequently cheaper than coal, and despite the uproar over fracking, burns much cleaner. In fact, natural gas has helped reduce greenhouse gas (GHG) emissions from electricity generation to 1992 levels. Unfortunately, these gains are confined to the U.S., as American coal has been shipped overseas at an increasing rate.
Last year, the United States set a record for coal exports after topping 120 million tons, roughly twice the amount in 2009. Between 2011 and 2012, European imports of American coal increased by nearly 30 percent, while Asia’s increased a total of 23.7 percent. The leading European importers by volume are the Netherlands, the United Kingdom, and Italy. Each country imported more American coal than India, while the Netherlands and U.K. each imported more than China. Even Germany increased coal imports by over 21 percent in 2012, though at a comparatively small volume (half of Italy’s).
The boom in natural gas is the chief cause of the rise in coal exports. While natural gas prices have bottomed out in the United States, the same is not true overseas, where it is three to five times more expensive. High gas prices in Europe combined with waning interest in coal in the U.S. has made American coal extremely attractive in foreign markets. Even under cap-and-trade legislation, which charges industries for GHG emissions, coal is cheaper than natural gas since lagging industrial output has made compliance very easy. Currently, the market price for a ton of carbon dioxide is a tenth of what it was in 2008.
The movement to phase out nuclear has also caused an uptick in coal consumption. According to a Washington Post article (“In Europe, green starts to turn black”), Germany’s decision to shut down nuclear plants has necessitated domestic lignite coal burning, which has increased to levels not seen since the early 1990s. One study found that burning lignite to produce electricity actually made electric cars dirtier than gasoline-powered cars. Japan has also grown more dependent on dirtier fuels after shutting down nearly all of its nuclear power plants.
The good news is that the rise of coal in Europe will likely be short term as lawmakers plan to lower the cap-and-trade ceiling for 2025 and 2030. The same can’t be said for Asia, but some U.S. groups are pushing for domestic restrictions on mining and exports.
As an extremely polarizing and stark case of industry versus environment, it will be interesting to see how this issue is resolved between the White House and the American public.
