2013 and the Transformation in Power Production

National Public Radio recently reported on the transformation of the power industry from coal to natural gas; it focused on Georgia Power’s growth in electric generating plants from natural gas.  This transformation is part of a broader, global move from coal to natural gas in power generation.  The World Energy Outlook 2012 report forecasted that, even with new, restrictive policies, global demand for coal will grow at 1 percent compound average annual growth rate between now and 2035.  Growth in natural gas consumption on the other hand will surpass that with a compound annual growth rate of 1.6 percent and a whopping 47 percent increase in consumption between now and 2035.

Without any change in policy, the World Energy Outlook 2012 forecasts substantial growth in demand for electric power.  In OECD countries it will grow by 16 percent, but in non-OECD countries electric power consumption will grow by 54 percent under the same scenario of no change to policy.  Much of this growth in power production will continue to depend on traditional fossil fuels including coal.  However, the extent to which there is an increasing transition to other fuels is evident in the report.

Across the globe, the report forecasts that gas-fired power generation will grow by almost 80 percent under a scenario that includes introduction of some new policies associated with carbon restrictions.  The report also forecasts that two-thirds of new plants will be built in non-OECD countries.  There are many reasons for the growth in natural gas-fired power plants.  They require lower capital costs and they permit shorter construction times.  With the increased production of natural gas from fracking, especially in the United States, prices for natural gas remain low as another advantage for power production from natural gas-fired plants.  As this blog has also noted in the past natural gas also produces fewer carbon emissions.

Changes in power production will come from increased use of renewables as well.  The production capacity from renewables almost triples in one scenario, but its growth is disproportionately in Europe, India and China.  Nuclear power will grow at a modest pace as a result of the disaffection with nuclear power that resulted from the disastrous earthquake in Japan, and power production from oil will continue to decline.

Where there will be the greatest change in power production is in from natural gas.  The US stands to benefit from this change with its very large available natural gas supply, its sophisticated technology, and the potential for favorable regulation associated with fracking.  What is unlikely to change is the demand for energy from developed countries and especially developing countries, as I wrote in my last entry.

World Energy Outlook 2012 – Part III: Coal

What is likely to be missed from news about the World Energy Outlook 2012 report is the role of coal in the future global energy mix.  With recent attention on natural gas (See Penley on Energy and Education) and the focus of most news reports on the US surpassing Saudi Arabia in oil production by 2020, the anticipated role of coal was lost.  Yet, the report forecasts that, even with new, restrictive policies, global demand for coal will actually grow by 1 percent compound average annual rate.  Coal demand is expected to more than doubles by 2035 in India.

It is clear that coal will play a very large role in our future energy mix.  In the last decade, it was coal that met 45 percent of the energy demand, per the Outlook 2012.  Without policy changes associated with greenhouse gas emissions, the forecast is for coal to still grow at a 1.9 percent rate.  At that pace, coal would surpass oil as the leading fuel by 2025.  But even so, its proportion of the total energy mix would decline from the last decade’s 45 percent to 30 percent by 2035.  Renewables and natural gas will play a much larger role.

The role of coal in our energy future depends upon a variety of factors, but leading among those are government policy and technology development.  Of particular import to coal producers is the potential role that government can play in establishing policies that encourage replacement of coal by cleaner fuels, ranging from a variety of renewables to natural gas.  The power sector would be most affected by these policies, and they would change the role of coal where policies are implemented.

Of course, there are alternative scenarios that leave coal as a much bigger player in the future.  Among them is the development of new technology for coal gasification or carbon capture and sequestration.  Both are receiving the attention of researchers in academia and industry, and both have the potential to substantially reduce emissions from coal.  The challenge remains of sufficient investment in the research needed to produce viable, large scale, financially successful technology (see a review of the area in Underground coal gasification: From fundamentals to applications in the Progress in Energy and Combustion Science journal).

In the immediate future without substantial change to policies coal use will continue to grow at a rapid rate.  In 2011, coal demand grew by 5.6 percent, a growth rate that was similar to 2010 and far more rapid than 2009 when it was flat.  With increased demand for electrical power in developing countries, the very rapid 55% increase in coal demand over the last decade is understandable.  In 2010 65 percent of global coal demand was consumed in power generation.  Even with the advent of new policy restrictions, the 2012 report projects growth in coal demand in non-OECD countries at a compound average annual growth rate of 1.4 percent between 2010 and 2035.  That would mean that the global growth rate is still almost 1 percent despite a decline that is greater than 1 percent in OECD countries.

World Energy Outlook 2012 – Part II: Natural Gas

The big news a few weeks ago, as I wrote in this blog, came from the World Energy Outlook 2012 report, which wrote that the US is on a trajectory to surpass Saudi Arabia in oil production by 2020.  The US Department of Energy yesterday completed its study on natural gas exports by an outside consultant.  The report can be summarized was follows:

  • Because of the abundance of natural gas in the U.S., only modest price increases will be seen by domestic consumers;
  • Exports of natural gas are made possible primarily by the increased availability of it; and
  • The expected shift in power generation from coal to natural gas will be slowed by increased exports.

The modest price increases predicted from allowing greater exports of US natural gas are directly related to its increased availability from unconventional sources such as shale.  The World Energy Outlook had forecasted that most of the newly available natural gas would come from three countries: China, Australia, and the United States.  It forecasted that by 2035 natural gas would become the most important fuel in the US, surpassing even oil.

My previous blog entry, “Liquid Natural Gas and US Energy Exports,” pointed out the potential economic impact of allowing increased exports of natural gas in terms of job creation here in the US.  However, the extent of that growth hinges on federal regulatory approvals.  The long-awaited Department of Energy study paves the way for those approvals.  Already, the World Energy Outlook 2012 has forecast that, even with exports, 93% of natural gas produced in the US would be kept here at home for domestic consumption.

Why would 93% remain available for domestic consumption if federal regulations permitted increased exports of natural gas?  There are many reasons, but among them is the growing availability of natural gas outside the US.  The Outlook 2012 report forecasts that, even with potential new climate-related policy restrictions, the production of natural gas in non-OECD countries could grow at a 2.1% compound average annual rate between 2010 and 2035.  This compares with 0.85% over the same period in OECD countries like the US.

The primary reasons for increased domestic consumption are the extent to which the power industry is shifting its fuel source from coal to natural gas, and the expansion in availability of domestic natural gas. The Outlook 2012 report estimates that output in North America would continue to expand from approximately 650 billion cubic meters (bcm) in 2011 to 800 bcm in 2035, nearly a 25% increase in availability of domestic natural gas.

We are now beginning to see the potential that is coming from the growth in the worldwide natural gas supply.  It will result in shifts away from traditional fossil fuels to cleaner natural gas and substantial increases in jobs within the energy industry.  Of course, both will depend upon supportive regulation.  The Department of Energy report should move us toward that supportive regulation.