New West Feature

Coal Falls While Natural Gas Rises? Picture in Wyoming Is More Complicated.

By Brodie Farquhar, 9-30-10

	Freudenthal notes a couple of flies in the coal-is-dead, long-live-natural gas ointment. “You can’t get a 10-year contact for natural gas,” he said, noting the volatility of natural gas prices in recent years and decades. “Pricing simply isn’t reliable." Photo by NIOSH and used under the Creative Commons license.

Earlier this month, the Wall Street Journal reported that power companies are switching from coal to natural gas, driven by lower natural gas prices and news of vast, new reservoirs. That simple picture gets a lot more complicated for the man who sits in the governor’s office in Cheyenne, Wyoming.

Gov. Dave Freudenthal doesn’t sound particularly worried about whether coal or natural gas is winning a larger slice of the market share. After all, Wyoming has an embarrassment of energy riches—coal, coal-bed methane, natural gas, oil, uranium and wind. However national energy policies and markets move in the future, Wyoming will benefit.

“I’ve seen these projections (cited by the Wall Street Journal),” said Freudenthal in an interview with New West, adding he’s not sure how solid they really are. “I’m a little softer on these projections.”

The Energy Information Administration (EIA) reports that coal-burning power plants are expected to slip from 18 percent of total new capacity in the U.S. in 2009, to 10 percent in 2013. At the same time, EIA reports that natural gas will grow from 42 percent of total new capacity in 2009 to 82 percent in 2013.

Earlier this summer, Massachusettes Institute of Technology issued a report, predicting that natural gas will play a leading role in reducing greenhouse-gas emissions by replacing older, less-efficient coal plants with highly efficient combined-cycle gas generation.

With natural gas falling to around $4 per 1 million British thermal units (Btu), gas is continually grabbing more market share. Coal is usually the loser, according to EIA stats, as utilities shift to natural gas, renewables like wind, or even nuclear.

Freudenthal notes a couple of flies in the coal-is-dead, long-live-natural gas ointment. “You can’t get a 10-year contact for natural gas,” he said, noting the volatility of natural gas prices in recent years and decades. “Pricing simply isn’t reliable,” he added.

At least not yet.

And yes, Wyoming’s governor acknowledges there have been vast new resources of natural gas coming on stream, such as the Marcellus shale back East. Freudenthal questions how quickly vast, new sources of natural gas will have an impact on the market.

“Who’d have thought a year ago that hydraulic fracturing would be so controversial?” he asked—quite possibly triggering new state and even national regulations that could slow development.

Wyoming is the first state in the nation to require energy companies to reveal the ingredient list in fracking fluids. That’s the biggest setback yet to the “Halliburton Loophole,” which exempts hydraulic fracturing, an oil and gas production method that has been linked to water contamination, from Safe Drinking Water Act regulations. (Hydraulic fracturing is a technique whereby water, sand and chemicals are pumped, under rock-cracking pressure, into formations bearing oil and natural gas. The fractures are kept open by the sand particles while the chemicals encourage hydrocarbons trapped in the sandstone or shale formations to start flowing. Fracking is widely used in the energy industry to revive older, flagging wells, jump-start new wells and have opened huge, new reservoirs like the Marcellus and closer to Wyoming, the Niobara formations.)

Rob Hurless, Freudenthal’s energy advisor, noted that energy companies are encountering a great deal of methane as they tap Marcellus natural gas, and don’t quite know what to do with it. Venting or burning methane is problematic, and the Marcellus shale region doesn’t have a nearby refinery that can handle methane.

One pipeline company has volunteered to reverse a pipeline flowing into Eastern markets, he added, to take the Marcellus methane and other liquids to Southern refineries.

Freudenthal is hesitant to call the migration of utilities from coal to natural gas “inevitable.” It remains to be seen, he said, how the availability of pipelines and the future impact of fracking regulations affect the energy play in the Marcellus and other promising formations.

He also notes that with the economic downturn, there’s little to no demand for additional power.

“From my perspective here in Wyoming,” said Freudenthal, “the best scenario I could imagine is a drought in the Northwest (impacting hydro-power) and a hurricane in the Gulf (disrupting oil and gas production).” That double-whammy would make Wyoming’s energy resources all the more attractive.

The Cowboy State has been working hard to develop clean coal and carbon sequestration technologies, Freudenthal noted. That should give Wyoming key advantages when the economy comes back and there’s greater demand for energy. The governor acknowledged that the economic downturn hasn’t been good for the Powder River Basin coal fields.

Demand for coal in China and India has risen exponentially, said Freudenthal, even to the point that China is importing metallurgical-grade coals. If Eastern coal companies start exporting to China, Hurless added, that could increase demand for Wyoming coal, even if it is lower-Btu.

“The bigger issue is that we lack a clear signal from the government on the cost of carbon emissions,” said the governor. Without a clear price signal, utilities can’t properly weigh the risk of burning coal and by default, switch to natural gas, he said.

Hurless said he’s encouraged by news from the Wyoming Mining Association, that Powder River Basin coal prices and production have risen. “We’re within spitting distance of the 2008 peak,” he said.

UW PERSPECTIVE

“That’s consistent with all the reports I’ve seen,” said Dr. Timothy Considine, an SER Professor of Economics in the Department of Economics and Finance at the University of Wyoming, about points made by the governor and Hurless.

“This fracking issue is hugely important,” Considine said. “It is hard to fathom the impact that regulations would have on energy production.”

His view on what utilities are doing with coal or natural gas supplies is more nuanced. “I think there’s this whole idea of a balanced portfolio if you read between the lines,” he said. “I think the utility companies are hedging their bets” as they pick and chose short-term winners and losers among coal and natural gas suppliers.

Still, Considine said energy economists and buyers can’t afford to ignore the vast economies of scale in the Powder River Basin coal fields.

Considine is also seeing a shift in the exploration field. With natural gas prices so low and oil prices high, Considine said companies that were recently drilling for natural gas are now drilling for oil – especially the Niobara formation that extends under the Powder River Basin. “These companies are redeploying after oily shales,” said Considine.

But don’t discount Wyoming natural gas and coal-bed methane, he added. California’s Assembly Bill 32 (the Global Warming Solutions Act) is designed to clamp down on coal, but could also increase demand for Wyoming natural gas, he said.

“If I’ve learned anything,” said Hurless, “the view from 30,000 feet can look simple. When you get down on the ground, it can get complex real fast.”

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