Tuesday, January 24, 2012

Study: U.S. LNG Exports to Give Coal New Lease on Life

By Press Action

By letting U.S. companies export domestically produced natural gas, the U.S. government will cause domestic natural gas prices to rise, which in turn will lead to the burning of more coal for the generation of electricity, according to a new report from the U.S. Energy Information Administration on the impacts of exporting liquefied natural gas.

Coal use, primarily for the generation of electricity, accounts for roughly 20% of global greenhouse gas emissions. When burned for electricity use, coal emits twice as much carbon dioxide per unit of energy delivered as natural gas. “Coal plants are the dirtiest, most regressive source of energy—poisoning our communities and environment,” the Sierra Club says.

Gas producers have been making significant discoveries in various geological formations across the United States over the last six years. With visions of great riches, industry officials have been racing to tap these shale gas resources. The result: gas supply is exceeding demand in the United States.

Given their significant investments in shale gas production, gas companies are hoping to reap a greater return on their investment by looking abroad for new markets. Producers, along with the owners of LNG import facilities, have been pushing to export natural gas produced in the United States to other countries. So far, the U.S. Department of Energy and the Federal Energy Regulatory Commission have rubber-stamped all of the LNG export applications that have come before them.

The push to export domestically produced natural gas is occurring at the same time that politicians have adopted the mantra of “energy independence” as a way to give big energy companies access to tax breaks and permission to explore for energy on lands that would otherwise be off limits to industrial activity.

EIA’s latest report, which clearly states that “increased natural gas exports lead to increased natural gas prices,” could throw a monkey wrench into the gas industry’s plans to fatten their bottom lines by exporting natural gas.

In fact, critics of the gas industry’s LNG export plans appear to be making progress. Analysts at Barclays Capital noted in a Jan. 24 report that “U.S. regulators have been pressed by large, gas-using industrial groups to ensure that the impact on U.S. prices from exported LNG is minimal.”

The Barclays analysts argued that this could restrict the number of LNG export permits granted by U.S. regulators. “That is, regulators seem prepared to allow perhaps a couple terminals to go forward, but may then wait to judge the impact on the U.S. gas market,” the analysts said. “This would effectively delay subsequent permits until after the start of the next decade.”

With EIA’s new study, critics of the gas industry’s LNG export plans have new ammunition, beyond the likelihood of higher prices: the specter of dirty coal plants getting a new lease on life. “Due to higher prices, the electric power sector primarily shifts to coal-fired generation,” EIA said in its study.

EIA, a division of the Department of Energy, noted that additional exports of LNG will result in decreased natural gas consumption in the United States. But this “decrease in natural gas consumption is replaced with increased coal consumption,” EIA said.

For its study, EIA used the reference case from its Annual Energy Outlook 2011, issued in April 2011, as the starting point for its analysis and made several changes to the model to accommodate increased LNG exports. On average from 2015 to 2035, under EIA’s reference case conditions, decreased natural gas consumption as a result of added exports are countered proportionately by increased coal consumption and increased liquid fuel consumption.

“In the earlier years, the amount of fuel-switching from natural gas to coal is greater, and coal plays a more dominant role in replacing the lower levels of gas consumption, which also tend to be greater in the earlier years,” EIA said. “Switching from natural gas to coal is less significant in later years, partially as a result of a greater proportion of switching to renewable generation sources.”

Based on EIA’s analysis, not only will natural gas prices increase due to U.S. companies exporting domestically produced natural gas, but the use of coal, the dirtiest of the fossil fuels, as a power generation feedstock will increase due to domestic gas supplies getting diverted to LNG exports.

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