By June 5, 2017 Read More →

Don’t believe Tillerson claims US can meet climate targets without regulation

Natural gas prices are up, prompting coal resurgence, and renewables only slowly gaining market foothold

Rex Tillerson is defending President Donald Trump’s decision to withdraw from the Paris climate accord, arguing that American greenhouse gas emissions will continue to drop without more federal regulations. But that argument only holds if natural gas remains cheaper than coal for electrical utilities and recent trends suggest that may not happen.

“It was a policy decision and I think it’s important that everyone recognize the United States has a terrific record on reducing our own greenhouse gas emissions,” the Secretary of State told reporters. “I don’t think we’re going to change our ongoing efforts to reduce those emissions in the future either, so hopefully people can keep it in perspective.”

But almost all of US emissions reductions have come from switching from coal to cheap fracked natural gas from shale basins such as the Marcellus and Utica on the northeast coast and the Permian in West Texas. Rising natural gas prices could reverse that trend, according to the US Energy Information Administration.

Noted Reuters energy analyst John Kemp says that recently American hedge fund managers “have been more bullish on US gas than any other energy commodity in the expectation that increasing exports plus the start up of new gas-fired power plants would tighten gas stocks.”

US power producers paid an average price of $3.36 per million British thermal units for gas in March 2017, up from just $2.23 in March 2016. Coal costs have actually fallen to just $2.08 per million Btu compared with an average of $2.18 in the same month last year.

Rex Tillerson, the former chairman and chief executive officer of Exxon Mobil, testifies during a Senate Foreign Relations Committee confirmation hearing to become U.S. Secretary of State on Capitol Hill in Washington, U.S. January 11, 2017. REUTERS/Kevin Lamarque

Combined-cycle power plants ran at slightly reduced rates in March 2017 compared with March 2016 and March 2015, according to the EIA. Coal-fired power plants saw a sharp increase in capacity utilisation, running at an average of 45 per cent of their full capacity, up from just 36 per cent in the same month last year.

Electricity generators produced 263 terawatt-hours (TWh) of electricity from gas during the first quarter of 2017, down from 312 TWh in 2016. But power production from coal increased to 292 TWh in Jan. – March 2017 up from 278 TWh in the same period last year, according to Kemp.

“The shift in relative prices has spurred a modest shift in power generation away from natural gas and back towards coal,” says Kemp.

Electricity generation accounts for more than 90 per cent of domestic coal use, according to the EIA. During the first six months of 2016, natural gas supplied 36 per cent of total US electricity generation compared with 31 per cent for coal.
During the third quarter of 2016, warmer-than-normal temperatures led to increased electricity generation—the highest on record for those three months combined—which resulted in higher consumption of coal compared to the first half of 2016.

Former New York mayor Michael Bloomberg, now the UN Secretary-General’s special envoy for Cities and Climate Change,  said American citizens and cities, along with market forces that have made solar and wind energy more economical than coal, have led the charge – not the federal government.

“I want the world to know that the US will meet its Paris commitments and that through partnerships among cities, states and businesses we will seek to remain part of the Paris agreement process,” Bloomberg said.

Renewable energy has a long way to go in the US before renewable energy makes a significant contribution to reducing electricity generation emissions. According to the EIA, wind made up just 5.6 per cent, solar 0.9 per cent, and geothermal 0.4 per cent of American power generation by the end of 2016.

The rhetoric from Tillerson and Bloomberg is just salesmanship.

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The EIA forecasts that without the Clean Power Plan – the centrepiece of former President Barack Obama’s climate policy that Trump struck down after assuming office in Jan. – coal will make a comeback in just a few years: “In the scenario where the Clean Power Plan is not implemented, coal again becomes the leading source of electricity generation by 2019 and retains that position through 2032, longer than in the Reference case, which includes the Clean Power Plan.”

Kemp says the rise in natural gas prices over the last 15 months has gradually rebalanced the market by incentivizing more gas production and encouraging power producers to switch back from gas to coal at the margin.

The number of rigs drilling for gas is up by 100 from its low in August 2016, according to oilfield services company Baker Hughes, in response to a doubling in gas prices, while the surge in oil well drilling are producing large volumes of associated.

Gas output is still down, but the pace of decline has slowed. Indicators suggest that production is about to start rising, which may moderate prices in 2017 but not drive them below the cost of coal for power producers.

With higher gas prices prompting a shift back to coal, a trend that could be more long-term with the Clean Power Plan, and renewables only slowly penetrating the huge American electricity market, the boasting by Tillerson and Bloomberg should be taken with a big grain of salt.

Posted in: Markham on Energy

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