Shale gas, not the EPA’s clean air rules, has driven coal’s decline in the US

shale gas

Since 2008, the use of coal in the US has dramatically declined. Many people believe that it is the EPA’s Clean Air rules that drive the decline.

However, a recent study conducted by Case Western Reserve University shows that cheap natural gas enabled by shale drilling is outcompeting coal markedly. The finding is published in The Electricity Journal.

Coal production in the US peaked in 2008 at 22.5 million MMBtu (“MMBtu” is millions of British thermal units of energy). But since then, its production declined sharply to 17.3 million MMBtu – a drop of 23%.

At the same time, natural gas production had a countervailing increase of 51%, from a lower base.

Researchers performed an in-depth analysis of the coal and gas market, improvement of technology, and policy changes since 2008.

They found that EPA air-quality rules, which were a result of “Obama’s war on coal”, have had little to do with coal’s decline. In fact, the EPA rules have been largely unchanged since 1990 and seem detached from the decline of coal.

Shale gas competition, on the other hand, has decimated coal. From 2007 to 2012, shale gas production strongly increased, and it attracted investment both in shale gas infrastructure (drill rigs, pipelines, and market structure) and in research and development for higher-productivity extraction.

Those in turn provided positive feedback that drove even greater gas production at even lower costs. Many power plant operators find that gas supply is continuing to increase and natural gas can work at a cheaper price, they thus switch from coal to gas easily.

Researchers expect that the future of gas is complicated but upbeat. First, accessible shale reserves have been growing faster than gas extraction. This means in the long run shale gas can maintain a low-enough price to beat coal.

Second, this price advantage will help shale gas occupy more market shares. There will be a significant increase in the share of production going to power plants and export. As a result, coal will lose more market shares.

Third, although EPA rules have not been much of a factor to help gas beat coal, both state regulations and generator technology have been factors.

In addition, as wind and solar sources of electricity continue to improve, they will be tough competitors to coal in the not-distant future.

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Citation: Culver WJ, Hong M. Coal’s decline: Driven by policy or technology? The Electricity Journal, 29: 50-61. DOI: 10.1016/j.tej.2016.08.008.
Figure legend: This image is credited to Bilfinger.