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New Rules, Cheap Energy Heighten Battle Between Coal and Gas

Tough new environmental rules and cheap energy prices are heightening the battle between coal miners and natural-gas pumpers over which fuel will dominate the U.S. power market.

At the IHS CERAWeek global energy conference here, there were some heated words on both sides of the debate.

“Cleaner coal, there’s no such thing,” Eldar Saetre, chief executive of the Norwegian oil giant Statoil AS STO 2.69 % A, told an audience of hundreds of people, most of them employed in the fossil-fuel industry. He added climate-conscious electric companies should burn natural gas instead.

“The only thing that gets tense is when somebody like the head of Statoil makes a comment like there is no such thing as clean coal,” said Gregory Boyce, CEO of Peabody Energy Corp., one of the largest coal companies by volume in the world. “In my view, that’s an irresponsible statement to make,” Mr. Boyce said in an interview.

The dispute over whether coal can be considered a clean fuel isn’t merely semantic. In 2007, coal powered almost half U.S. electricity production, according to the U.S. Energy Information Administration. Last year, its share dropped to 39% and due in large part to climate-change regulations proposed by the Obama administration, that percentage will fall to 30% by 2030.

 Statoil CEO Eldar Saetre said, ‘there’s no such thing’ as cleaner coal at the IHS CERAWeek energy conference in Houston. Photo: F. CARTER SMITH/BLOOMBERG NEWS

Natural gas, which fueled 21% of U.S. electricity in 2007, rose to 26% last year and could account for close to 40% by 2030. A decade ago, natural gas was considered to be in short supply in the U.S. and therefore was relatively expensive. The advent of horizontal drilling and hydraulic fracturing has unlocked a glut of cheap gas from American shale rock formations. The price of competing coal has been battered, leading money-losing companies to close mines.

The two fuels are duking it out over more than price. Governments in Europe and the U.S. have been pushing utilities to slash the amount of pollution and greenhouse gases they emit.

Mr. Saetre said in an interview that putting a price on the carbon content of fuels, such as the carbon tax Norway has imposed, works well.

“Something will be left in the ground,” he said. “I would leave coal in the ground.”

Mr. Boyce, who is stepping down as Peabody CEO next month but will remain executive chairman, disagreed.

“For him to say there’s no such thing as clean coal, I would say there’s no such thing as clean gas,” Mr. Boyce said.

The U.S. Environmental Protection Agency has increasingly pushed to clean up pollution from power plants, and is ramping up its effort to fight greenhouse-gas emissions. Under the agency’s proposed carbon rules, any new coal plants must use a technology called carbon capture and sequestration, meant to capture and store carbon gases produced by burning fuel instead of allowing it to flow into the atmosphere. That technology isn’t commercially available yet, most in the energy industry agree.

Natural gas emits about half the carbon of coal when burned for electricity. But Mr. Boyce said he believes that eventually gas-fired plants also will have to adopt carbon-capture technology to meet climate-change goals, something Obama administration officials have said too.

Mr. Boyce delivered a stump speech at the conference on Thursday underscoring his belief that coal is essential to ensure poor people can afford electricity, in the U.S. and around the world. Affordability should be the first focus of federal policy, he said, “not an environmental crisis that is predicted by flawed computer models.”

Gina McCarthy, the EPA administrator, offered reassurance to the coal industry on Thursday, saying that no fuel will be shut out under the agency’s climate plans. By 2030, she said, “it is very clear that we are talking at least 30% of our energy generation coming from coal.

source: http://www.wsj.com