MONEY Gas

Last Time Gas Prices Were This Cheap, It Was January 2011

The price of regular gasoline dropped to $2.659 per gallon at the Hi Tech Fuels station on Brainerd Road and other stations in Chattanooga, Tenn., on Tuesday, Oct. 21, 2014.
The price of regular gasoline dropped to $2.659 per gallon in Chattanooga, Tenn., on Tuesday, Oct. 21, 2014. John Rawlston—AP

Average prices at the pump have dropped roughly 10¢ in one week, and drivers in no fewer than 17 states are already paying less than $3 per gallon.

The analysts forecast that $3 gas was in our nation’s future, and indeed, according to AAA data, the average price for a gallon of regular is currently under the $3 mark in 17 states. The gas price tracking app GasBuddy reports that 46% of gas stations around the country are now charging less than $3 per gallon, compared with just 3% one year ago.

Nationally, the average has fallen by roughly a dime over the course of a quick seven days, landing just under $3.09 as of Wednesday. That’s about 25¢ cheaper than what drivers were paying for gas both one month and one year ago, and 60¢ less than prices in spring and early summer 2014. The cost of filling up has been positively plummeting for drivers in states such as Kentucky and Indiana, where gas stations lowered prices an average of 17¢ and 16¢, respectively, during a recent seven-day span.

Overall, the current $3.086 national average is the lowest the country has seen since early January 2011, when it was measured at $3.07. Could prices go even lower? Sure. In fact, that’s more or less what’s expected.

Earlier this fall, experts had predicted the national average would “perhaps” hit $3.10 or $3.15 by year’s end. What this means is that prices have dipped more quickly and sharply than most analysts ever anticipated—thanks to weak demand, increased global production, and the strengthening U.S. dollar, among other forces. Now experts such as GasBuddy’s Patrick DeHaan are projecting that the national average “will break the $3/gallon mark by around Election Day.”

The last time we were under the $3 mark as a country was December 2010. What’s interesting is that people weren’t particularly happy about gas prices at the time—because the average had been roughly 40¢ cheaper one year prior to that. Everything is relative.

TIME energy

Why Airfares Are Rising Despite Lower Fuel Costs

Delta Airlines Inc. Terminal Ahead Of Earnings Figures
A Delta Air Lines Inc. airplane departs Ronald Reagan National Airport in Washington, D.C., U.S., on Friday, July 18, 2014. Bloomberg—Bloomberg via Getty Images

Airlines stand to gain when gas costs fall

Airlines’ profits have been, yes, taking off this year, and the industry doesn’t seem inclined to change that flight path. The big carriers announced a $4 per ticket price increase Tuesday, even as falling jet fuel prices were delivering an unbudgeted bonus. Although it’s not unusual for a carrier’s announced price increase to get withdrawn when a competitor decides not to play ball, there doesn’t seem to be much resistance to Tuesday’s news.

Were you expecting the carriers to have mercy on you, given that flights are stuffed, there are upcharges for everything from baggage to overhead space to boarding early, and passengers are staging midair cage fights over knee room? Get real. As one airline consultant told me about a year ago, the semi-romantics who used to run the airlines are long gone. Instead, the folks in charge today play hardball. They are running a business, not their advertising agency’s image of air travel.

With seats in shorter supply domestically, that means pricing is going to remain tight. In Delta’s most recent quarter, for instance, its passenger yield — a measure of the average fare paid — increased 1.9%. The company’s results had Richard Anderson, Delta’s chief executive officer, crowing: “While we have more work ahead of us to achieve our long-term financial goals, we expect a record fourth quarter of 2014 with an operating margin of 10%-12%. For the full year, we expect a pre-tax profit in excess of $4 billion.” That’s following a record year last year.

Delta, like other carriers, is managing costs tighter and benefitting from the slide in oil prices. In its most recent quarter, Delta’s fuel cost declined by $23 million. According to the industry trade group A4A, a penny a gallon decrease over a year saves the carriers $190 million. Delta expects fuel to drop from $2.90 a gallon to between $2.69 and $2.74 a gallon in the current quarter.

Delta notes that there are three major drivers of airline economics: aircraft maintenance, ownership cost and fuel cost. The first two are fairly predictable costs that management has some control over. Fuel is a variable cost with a capital V. When oil was soaring, the airlines were losing billions and eventually were driven into bankruptcy. They have emerged, recapitalized and rationalized: they can make money even with much higher fuel costs. But they can make a lot more money with lower fuel costs as well as by raising prices. There is no reason not to do both. “Domestically, clearly we are in an environment where the carriers are rational, and financially motivated,” American Scott Kirby told analysts recently. ” In other words, don’t expect any free drinks any time soon.

TIME energy

Is Fusion Power Closer Than We Thought?

The UW reactor’s size means it needs fewer ingredients to create fusion

This post originally appeared on OilPrice.com.

The promise of generating energy with nuclear fusion is tantalizing because it would be free of toxic emissions and nuclear waste, and would have a virtually infinite fuel supply. On the downside, though, it is extremely costly compared with fossil fuels like natural gas and coal.

Now engineers at the University of Washington (UW) have developed a design for a fusion reactor that could be even less expensive than a coal-fired plant but boast similar generating capacity. The current design is for a reactor too small to generate much electricity, but the team is confident it can be scaled up to the size of a large power plant.

“Right now, this design has the greatest potential of producing economical fusion power of any current concept,” Thomas Jarboe, professor of aeronautics and astronautics and an adjunct professor in physics, told the UW news department.

Related: Breakthrough in Fusion Research Brings New Nuclear Power Source Closer

The engineers already have published the design, along with a cost-analysis study, in the journal Fusion Engineering and Design, and are scheduled present their findings at the International Atomic Energy Agency’s 25th Fusion Energy Conference in St. Petersburg, Russia, on Oct. 17.

The dynomak, as the reactor is called, began in 2012 as a mere student project for a class taught by Jarboe. Later Jarboe and a doctoral student, Derek Sutherland, worked to refine the concept.

Their plan was to create a magnetic field within a closed space to contain plasma – hydrogen gas rich in electrically-charged atoms – long enough to heat the plasma to the extreme temperatures needed to maintain thermonuclear conditions. This intense heat then would be transferred to a coolant fluid that would spin a turbine to generate electricity.

The UW power generator’s design, called a spheromak, also generates most of its magnetic fields by impelling electrical currents into the plasma itself, reducing the amounts of materials needed to generate and maintain thermonuclear fusion and thereby reducing the size of the reactor altogether.

Jarboe’s team says their reactor is an improvement on previous designs for fusion reactors, including one called Iter that’s now being built in Cadarache, France. Iter needs to be larger than the UW reactor because it needs superconducting conduits that coil around the exterior of the reactor to generate its magnetic field.

Related: The Ten Reasons Why Intermittency is a Problem for Renewable Energy

And because of the UW reactor’s size and its need for fewer ingredients to create fusion, it would cost one-tenth as much as the French reactor, yet produce five times more energy.

As for cost analysis, the UW team compared the amount of money needed to build a coal-fired plant and a fusion power plant based on their design, each capable of the same electrical output. The coal plant would cost $2.8 billion, and the fusion plant would cost a little less, $2.7 billion.

“If we do invest in this type of fusion, we could be rewarded because the commercial reactor unit already looks economical,” Sutherland said. “It’s very exciting.”

More Top Reads From Oilprice.com:

TIME energy

Low Oil Prices Raise the Risk of Recession in Russia

Russia oil
Russia will look to tap Arctic resources of oil and gas Photo by Dmitry Korotayev/Kommersant Photo via Getty Images

Oil prices dipped to around $92 per barrel in early October

This post originally appeared on OilPrice.com.

Falling oil prices are inflicting deeper economic pain on Russia’s economy, which is already reeling from EU and U.S. sanctions.

Russia is currently considering its budget for 2015-2017, and based on the numbers, the Kremlin is planning for leaner times. With oil revenue accounting for around half of the country’s budget, any dip in prices has a ripple effect.

And in recent years, Russia’s economy has become more dependent on oil to meet its budget commitments. Excluding oil revenue, Russia has run a budget deficit that hit 10.3 percent in 2013, the highest level in three years.

In other words, the government needs oil revenues to plug budget holes, and that need is growing.

Related: Will Ukraine Commit Economic Suicide?

Russia occupies a strong economic position when oil prices are high, but for every $1 decline in the price per barrel of oil, Russia loses $2.1 billion in revenue on an annualized basis. Slumping oil prices in recent months could see revenues to the state decline by $30 to $40 billion.

The Russian economy may only expand 0.4 percent this year, and just 1 percent in 2015. But even that meager growth rate is not a certainty. Russia is increasingly facing the possibility of recession, according to a Bloomberg survey of economists.

Oil prices dipped to around $92 per barrel in early October. While that won’t plunge Russia into an immediate economic crisis, the government needs oil prices to stay around $105 in order to balance the budget. Thus, if oil prices don’t rebound soon, problems will only grow worse for the Kremlin.

The upcoming budget plans for the possibility of persistent inflation, a weakening ruble, and the potential need for the state to dip into cash reserves in order to finance its budget. What is worse, even this negative outlook is based on highly optimistic assumptions – it assumes oil prices of around $100 per barrel.

“It is quite optimistic given where oil prices are at now and given how much the Russian budget depends on oil revenues,” Liza Ermolenko, an analyst at Capital Economics, told The Moscow Times. “For the next year, it’s more likely that the oil prices will be lower than what they are penciling in.”

Running a deficit will be tricky because western sanctions have restricted access to financial markets. Major Russian companies targeted by the U.S. and Europe are unable to take out long-term loans. As a result, they are turning to the Russian state for funds. That has worked so far, but a Bloomberg report outlines an emerging fight within the Russian elite over a dwindling pile of money.

The mid-September arrest of Vladimir Evtushenkov, the head of oil company OAO Bashneft, was a sign that the situation is starting to deteriorate. He is the richest Russian arrested since Mikhail Khodorkovsky was thrown in jail in 2005 and whose oil company, Yukos, was taken over by the state. Evtushenkov, an ally of Prime Minister Dmitry Medvedev, is thought to have been arrested because of a growing rift in Russia’s elite that is at least partially due to the troubled economy.

Related: Europe Seeks To Undermine Russian Energy Influence

“This is creating a dire financial situation, particularly for state companies friendly to Putin, which are now vying for shrinking state resources,” Yevgeny Yasin, a former Russian economy minister, told Bloomberg. Russian President Vladimir Putin and his allies are hunting for more assets as the economy worsens, according to the same article.

Oil prices could remain low for a while. Reuters reports that the Russian central bank is beginning to plan for a disaster scenario in which oil prices drop to $60 per barrel. Such a scenario would precipitate a dramatic weakening of the ruble, forcing the central bank into action.

But there is no easy way out. The Russian economy is far too dependent on the global price of oil, a volatile benchmark largely out of the Kremlin’s control.

More Top reads From Oilprice.com:

TIME energy

The World’s 10 Biggest Energy Gluttons

Reykjanes power station in Iceland, seen in 2013.
Reykjanes power station in Iceland, seen in 2013. Halldor Kolbeins—AFP/Getty Images

See where the United States falls on the list

This post originally appeared on OilPrice.com.

Next time you get into your car and drive to the supermarket, think about how much energy you consume on an annual basis. It is widely assumed that Westerners are some of the world’s worst energy pigs. While Americans make up just 5 percent of the global population, they use 20 percent of its energy, eat 15 percent of its meat, and produce 40 percent of the earth’s garbage.

Europeans and people in the Middle East, it turns out, aren’t winning any awards for energy conservation, either.

Oilprice.com set out to discover which countries use the most energy and why.

Related: Why Energy Efficiency Is The Most Important Fuel We Didn’t Know We Had

While some of the guilty parties are obvious, others may surprise you. A note about the figures: we used kilograms of oil equivalent (koe) per capita, which refers to the amount of energy that can be extracted from one kilogram of crude oil. “Koe per capita” can be used to compare energy from different sources, including fossil fuels and renewables, and does here. The numbers represent the most recent data available from the World Bank.
World Development Indicators

1. Iceland – 18,774 kg. Yes, that’s right, Iceland. Of all the countries in the world, including the richest and largest oil producers, Iceland consumes the most energy per person. How can that be? The reason is basically overabundance. With most of Iceland’s energy coming from hydroelectric and geothermal power, Icelanders are some of the planet’s least energy-conscious. Click here for a fascinating video of why the Nordic nation uses so much energy.

2. Qatar – 17,418 kg. Qataris are addicted to oil. According to National Geographic, the population is provided with free electricity and water, which has been described as “liquid electricity” because it is often produced through desalination, a very energy-intensive process. Qatar’s per capita emissions are the highest in the world, and three times that of the United States.

3. Trinidad and Tobago – 15,691 kg. Trinidad and Tobago is one of the richest countries in the Caribbean, and the region’s leading producer of oil and gas; it houses one of the largest natural gas processing facilities in the Western Hemisphere. T&T is the largest LNG exporter to the United States. Its electricity sector is entirely fueled by natural gas.

4. Kuwait – 10,408 kg. Despite holding the sixth-largest oil reserves in the world, and an estimated 63 trillion cubic feet of natural gas reserves, the demand for electricity in Kuwait often outstrips supply. According to the U.S. Energy Information Administration (EIA), Kuwait is perpetually in electricity supply shortage and experiences frequent blackouts each summer. The country has become a net importer of natural gas to address the imbalance.

5. Brunei – 9,427 kg. The tiny sultanate on the island of Borneo, apart from being a substantial producer and exporter of oil and natural gas to Asia, is also a habitual power hog. The nation of roughly half a million has the region’s highest number of cars per capita. Brunei also subsidizes both vehicle fuel and electricity, which is sold to the public at below-market prices.

6. Luxembourg – 7,684 kg. Landlocked Luxembourg is almost totally dependent on energy imports, mostly oil and gas. Energy consumption has increased 32 percent since 1990, with transportation responsible for 60 percent of the intake, according to an EU fact sheet.

7. United Arab Emirates – 7,407 kg. Nothing says conspicuous energy consumption like Ski Dubai. The indoor resort featuring an 85-meter-high mountain of man-made snow burns the equivalent of 3,500 barrels of oil a day. The World Resource Institute estimates the UAE uses 481 tonnes of oil equivalent to produce $1 million of GDP, compared to Norway’s 172 tonnes.

Related: Africa and Belgium Generate the Same Amount of Electricity – But That’s Changing

8. Canada – 7,333 kg. Oh, Canada. Kind, peace-loving Canadians certainly love their cars, along with space heaters, hot tubs and other energy-sucking toys. But while many equate Canada’s energy sector with the oil sands, it is, in fact, other forms of energy that account for the lion’s share of consumption. EcoSpark published a pie chart showing over half (57.6 percent) of Canada’s electricity comes from hydro, with coal the second most popular choice at 18 percent. Nuclear is third (14.6 percent), with oil and gas comprising just 6.3 percent and 1.5 percent, respectively.

9. United States – 6,793 kg. As the world’s largest economy and richest nation, the U.S. should obviously be included as a top 10 energy glutton. However, one puzzling fact is that despite annual economic growth, per-capita U.S. energy consumption has remained around the same level since the 1970s. According to the EIA, one explanation is that the U.S. has simply shifted the energy required to satisfy greater consumption to manufacturing centers offshore.

10. Finland – 6,183 kg. With over a third of its territory above the Arctic Circle, a cold climate, sparse population and a highly industrialized economy, it is no wonder that Finland is among the highest per-capita energy users in Europe. However, according to the International Energy Agency, Finland plans to diversify its economy away from carbon-based fuels, through a shift to renewables, including biomass, and has approved construction of two new nuclear plants.

More Top Reads From Oilprice.com:

TIME energy

Who is Buying the Islamic State’s Illegal Oil?

Syrian petroleum being wasted in Qamishli
Syrian petroleum is being wasted due to the clashes between Islamic State of Iraq and Levant (ISIL) and Kurdish armed groups. A general view of the wells is seen on September 25, 2014. Anadolu Agency—Getty Images

The terrorist group sells its oil on the cheap

This post originally appeared on OilPrice.com.

In June 2014, computer files captured from a courier for the Islamic State shortly after the fall of Mosul revealed that the group had assets of $875 million, largely gained in the sacking and looting of Mosul and its central bank.

The size of the group’s bank account has now risen to an estimated $2 billion dollars, thanks in part to revenues from ransom paid for kidnapped foreigners and more pillaging. However, oil remains the group’s primary source of income.

The 11 oil fields that IS controls in Iraq and Syria have made it a largely independent financial machine. Reports show that IS-controlled fields in Iraq produce between 25,000 and 40,000 barrels of oil per day, at an estimated value of approximately $1.2 million, before being smuggled out to Iran, Kurdistan, Turkey and Syria.

Related: Islamic State’s Ultimate Goal: Saudi Arabia’s Oil Wells

That doesn’t account for revenue from oil fields that IS has held much longer in Syria, which take the Islamist group’s daily profit to just under $3 million.

But if the regional narrative of IS’s rise is to be believed, the group is universally loathed. How, then, is it so readily finding customers to buy its oil abroad?

Oil smuggling is hardly new in Iraq and Syria — Iran and Turkey have been major conduits for illegal oil exports since the days of Saddam Hussein. Those smuggling rings are still very active, and are now working with IS and contributing to its exploding wealth.

In an interview with CNN, Luay al-Khatteeb, the director of the Iraq Energy Institute, explained that “IS smuggles the crude oil and trades it for cash and refined products, at a refined price,” thanks to its own refineries in Syria.

One important reason that smugglers have been so eager to work with IS is that the terrorist group sells its oil on the cheap. A barrel of oil that would ordinarily sell for over $100 can be discounted as much as 75 percent. But it’s still a profitable sale for IS, as the money it loses from such a discount is more than made up for by the readiness of customers to buy its oil and the plethora of routes through which it can export it.

“The crude is transported by tankers to Jordan via Anbar province, to Iran via Kurdistan, to Turkey via Mosul, to Syria’s local market and to the Kurdistan region of Iraq, where most of it gets refined locally,” Khatteeb explained. “Turkey has turned a blind eye to this and may continue to do so until they come under pressure from the West to close down oil black markets in the country’s south.”

One of the more terrifying aspects of IS’s newly found wealth is that it is no longer based on the traditional donor model, in which rich sympathizers in the Middle-East and the West pour generous funds into training and capacity-building of fresh jihadists. IS’s goal has always been to form a caliphate, and although no country would recognize it as such, it is running the territory it conquers as a state, albeit through illegal means; IS is pumping, refining and selling oil, just like any other petro state.

What’s more, now that it controls fertile provinces in western Iraq, such as Anbar and Nineveh, the group also now sits on 40 percent of Iraq’s wheat crop, and can force farmers to deal only with them, sometimes for no pay. Baghdad is now worrying about a medium-term food crisis, since 20 percent of its stores are in IS-held territory and thousands of farmers have fled.

Related: Eliminating The Scourge Of Islamic State In Iraq

Clearly, there’s a stark difference between the financial operations of IS and those of Al-Qaeda and other international terrorist organizations. U.S. President Barack Obama recently admitted that his administration and the intelligence community had underestimated IS, which now looks like a nightmare to Washington.

The group has captured American military-grade weaponry and equipment and freed from jail former soldiers who know how to use it. It is independently rich but operates outside the normal fiscal system, which means conventional financial sanctions can’t touch it. It has set up its own illicit trading networks in an area it controls with an implacable totalitarianism. It effectively combines political terror, religious zealotry and financial muscle to bend local populations to its will.

IS’s powerful economic engine may not guarantee that it will one day peacefully rule the territory it claims, but $3 million a day more than assures that it can continue financing its fight to do so.

More Top reads From Oilprice.com:

TIME energy

Oil Prices Hit 3-Year Low

Oil Rig
Getty Images

As OPEC squabbles over sharing pain of lower prices

The price of crude oil fell to a new three-year low Monday as a split between the world’s most important producers on how to share the pain of lower prices becomes increasingly apparent.

Prices for the U.S. and European benchmark blends fell nearly 2% in early trading Monday, on a Reuters report suggesting that Saudi Arabia was willing to accept a price of as low as $80 a barrel for the next year or two, in order to defend its share of the global market. The New York Mercantile Exchange’s crude contract traded at $84.65 by 0700 EDT, down from a peak of over $107 a barrel as recently as June.

Saudi Arabia is the largest producer in the Organization of Petroleum Exporting Countries, the cartel which produces a third of the world’s oil supply and essentially keeps the balance of supply and demand in the market. As Saudi Arabia can undercut almost every other country if it wants to, it has a huge influence on regulating OPEC’s overall supply.

The price of the world’s most important commodity is under pressure from both directions: demand is weakening as the European and Chinese economies slow down, while global supply is increasing as Iraqi and Libyan exports rebound from war-related disruptions, and the U.S. pumps ever more oil from shale deposits. (The long-term demand outlook is also looking rockier, because of new technologies such as electric cars.)

The sharpest decline in recent weeks was due to Saudi Arabia slashing official selling prices for customers in Asia and Europe signalling that it was prepared to remove the floor for prices for the short term. Iran and Iraq have both followed suit in recent days.

Such developments invariably create tensions within OPEC, whose 12 members have very different agendas.

Venezuela and Iran, two countries which need as high a price as possible to support their budget spending, have both signalled their unhappiness and are pressing for an emergency meeting of OPEC ministers to agree coordinated production cutbacks. A top adviser to the Iranian oil ministry, Mehran Amirmoeini, warned at the weekend about a repeat of the havoc of 1998, when an “inadequate reaction by OPEC” to the Asian financial crisis brought the price crashing down to $8 a barrel.

Saudi and its gulf allies, Kuwait and the United Arab Emirates, have so far appeared unmoved.

“I don’t think today there is a chance that (OPEC) countries would reduce their production,” state news agency KUNA quoted Kuwaiti minister Ali al-Omair as saying Sunday.

Saudi Arabia’s willingness to accept a price war may benefit U.S. and European consumers in the form of lower gasoline prices, but will have big knock-on effects in other oil-producing countries.

It will certainly make life harder for shale oil producers in the U.S., as up to 40% of alternative U.S. oil supplies may be unprofitable at prices below $80 a barrel, according to analysts at Deutsche Bank.

But the chief effects are on other petro-states. Russia, for example, needs an oil price of $114/bbl for its budget to balance this year, and it needs a balanced budget all the more because western financial sanctions mean that it can’t finance a budget deficit by borrowing in international capital markets right now. The ruble hit a new all-time low of 40.438 to the dollar in early trading Monday and has lost 16% against the dollar since July. Against a backdrop of falling revenue, finance minister Anton Siluanov warned last week that the country’s ambitious plans to raise defense spending had become unaffordable.

A spokesman for Russian state-controlled giant OAO Rosneft took a swipe at Saudi “manipulation” of the oil price on Sunday, warning that it would “end badly” for the Kingdom. Saudi-Russian relations have soured over Russia’s support for the Assad regime in Syria. Russia has also grumbled about Saudi sponsorship of radical Islam in its southern republics.

This article originally appeared on Fortune.com

MONEY Gas

Gas Prices Just Hit a Low for 2014

Gas Cans
Get it while it's cheap! NoDerog—Getty Images

Around the country, drivers are paying the lowest prices of the year for gas.

The summertime swoon for gas prices has continued into fall, and now it looks like the forecasts calling for lower and lower prices at the pump are right on track.

Earlier this week, AAA noted that the national average for a gallon of regular stood at $3.29 and that we were on the brink of matching the cheapest mark thus far in 2014 ($3.27, hit on February 9). Well, as of Wednesday, AAA data indicated the national average hit $3.267, a new low for the year.

What’s more, drivers in many states are paying well below the national average. The price of regular is averaging $3.10 or less in Alabama, Arkansas, Kansas, Minnesota, Mississippi, New Jersey, Oklahoma, South Carolina, Tennessee, and Virginia, and Missouri is cheapest of all, recently dipping just under $3 per gallon—the first state to average under $3 since January. Drivers in many metropolitan areas, including Kansas City, Duluth, Minn., Tulsa, Okla., and Iowa’s Quad City area, have been enjoying sub-$3 gas this week. The gas price-tracking site GasBuddy is also reporting that gas stations in no fewer than 18 states currently have prices that are the lowest they’ve been for all of 2014.

Best of all for drivers hoping to spend less on fill-ups, all signs indicate the trend for cheaper and cheaper gas will keep on rolling in the months ahead. AAA is predicting that the national average will dip to $3.20, perhaps even $3.10, by the end of the year, by which time as many as 20 states could see per-gallon prices drop below $3.

TIME energy

America’s Big Bet On Natural Gas And Big Short On Coal

Shale gas
A shale gas well in Pennsylvania Ty Wright/Bloomberg via Getty Images

The U.S. is becoming increasingly dependent on natural gas

This post originally appeared on OilPrice.com

America is betting the kitchen sink on natural gas. No matter which estimate you look at — the U.S. Energy Information Administration, the International Energy Agency, or Wall Street banks — two things are clear: the United States is slated to consume enormous amounts of natural gas and the dominant fuel of electricity generation for the last 50 years, coal, is diminishing.

First, America’s energy darling: natural gas. It is difficult to overstate the effect shale gas production has had on the United States. In 2006, shale gas production accounted for about 5 percent of natural gas production. In 2013, it accounted for roughly 40 percent. As industry leaders clamored to take advantage of the vast supply of newly accessible domestic natural gas, analysts began to forecast longer and longer projections of low natural gas prices. The result is big expectations for natural gas.

The EIA expects natural gas production to grow at a 1.6 percent annual rate from 2012 through 2040, resulting in a dry natural gas production of 23.04 quadrillion BTU in 2013 and a production forecast of 38.37 quadrillion BTU in 2040. Demand will come from residential, commercial, and transportation use, but the largest demand increase will be from the electric power sector, particularly combined cycle power plants. Today, the U.S. has a combined cycle generating capacity of roughly 190 gigawatts. By 2040, capacity is forecasted to increase to approximately 316 gigawatts.

Meanwhile, the outlook for coal continues to appear bleak. This week, the Government Accountability Office released a newreport with increased projections for the number of coal plants expected to retire in the coming years. The report estimates that 42,192 megawatts, or 13 percent of coal-fueled summer generating capacity, will retire between 2012 and 2025 as a result of environmental regulations, lower natural gas prices, and decreasing electricity demand. These retirements are on top of the 150 coal-fueled units with a summer generating capacity of 13,786 megawatts that have been retired since 2000.

America’s gamble will not affect everyone in the country equally. Almost 40 percent of the retired coal capacity will take place in in Ohio, Pennsylvania, Kentucky, and West Virginia. Fortunately, Pennsylvania, Ohio, and to a lesser degree West Virginia, have economies that will be better prepared for this transition as a result of surging production from the Marcellus and Utica shale plays.

The story is the same for exports. Last week, the U.S. Energy Department gave the final approval to build two more LNG export terminals.

Related: This Natural Gas Giant Is Worth The Risk At These levels

The outlook for coal exports is much different. Last month, Oregon’s Department of State Lands denied a key permit to Australia-based Ambre Energy to build a coal export terminal on the Columbia River. On Sept. 15, Ambre Energy was dealt another blow when the U.S. Army Corps of Engineers denied its appeal. Corps spokesman Scott Clemans said, “We could do [the review] and make a yes or no determination, but given the lack of clarity right now as to whether the required state authorization is going to happen, and given the amount of time and energy we still need to devote to this project, it doesn’t make sense to devote resources to a project that may not happen.”

For everyone’s sake, let’s hope the gamble pays off. Because if natural gas fails to live up to the high expectations, there will be less coal to back it up.

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TIME energy

Why King Coal Will Keep Its Crown

A coal plant looms behind a traditional house in Tianjin, China
A coal plant looms behind a traditional house in Tianjin, China Frederic J. Brown—AFP/Getty Images

The challenge of unseating the most polluting power source on the planet

This post originally appeared on OilPrice.com

For climate change activists and those hoping for an energy future dominated by renewables or even less-polluting natural gas, the death of coal cannot come quickly enough. But with coal still the dominant form of cheap electricity throughout the world, it is unlikely the bogeyman of climate change will disappear anytime soon.

That’s because the price of coal, compared to other fuels, is just too good to refuse. Just look at China, where the country’s double-digit economic growth has largely been fueled by coal, which fulfills 60 percent of its energy mix.

According to a chart showing the levelized cost of energy — the price at which electricity must be generated from a source to break even — coal is the second-cheapest form of energy behind hydropower, at $40 per megawatt hour.

Compare that to the cost of nuclear at $60, natural gas at $70, and solar — which at $280 per MWH, is seven times the cost of coal. Coal is also plentiful, relatively easy to extract — though admittedly dangerous if mined underground — and requires minimal processing. And it can be used for power generation (thermal coal) or steelmaking (metallurgical coal).

Of course, coal-fired plants have exacted an enormous price on air quality, and the Chinese government – which has declared war on pollution — recently banned the use of coal in smog-cloaked Beijing. Last week, it was announced that for the first time in over a decade, Chinese coal imports and coal consumption both dropped.

While that may seem like a dart in coal’s balloon, coal’s continued use elsewhere is more than making up for China’s restraint.

Germany doesn’t like to talk about it, but the world leader in the use of renewable energy, particularly solar, is also a big consumer of coal. As The Economist recently pointed out, Germany’s production of power from lignite coal is now at 162 billion kilowatts, the highest level since the smokestack-belching days of East Germany.

The same article notes that Japan, which has no natural energy resources of its own and is scrambling to meet electricity demand — most of its nuclear reactors have been offline since the 2011 Fukushima disaster — approved a new energy plan in April that includes coal as a long-term electricity source. The Japanese have also invested almost $20 billion in overseas coal projects in the past seven years, according to the Natural Resources Defense Council.

In the United States, even though a shale-gas supply boom has seen many utilities shift to cheaper natural gas, the country will still be generating a third of its energy from coal by 2040 (only 10 percent less than now), according to the U.S. Energy Information Administration (EIA). That’s despite a concerted effort by the Obama administration to force the nation’s coal-burning power plants to reduce their carbon emissions by a third over the next 15 years.

U.S. coal producers have responded to the trend of falling domestic consumption by exporting more coal overseas. A Wall Street Journal chart shows exports of U.S. coal grew from around 50 million metric tons in 2000 to 106.7 million MT in 2013. Most U.S. coal is destined for Europe, with Brazil, South Korea and China close behind.

All of this is not to suggest that coal producers haven’t had their problems. The price of benchmark thermal coal over the past three years has dropped from more than $130 a ton to around $80. Metallurgical coal is also at a six-year low.

Despite a huge cutback in production, the coal market continues to be oversupplied. As Oilprice.com pointed out recently, waning steel demand in China has forced mines in Australia to close. Australian producers are also threatened by Chinese plans to build more rail capacity for its domestic coal, which would undermine its coal imports.

In the United States, coal producers are finding it increasingly difficult to lock utilities into long-term contracts that provide stability and protection from price fluctuations. That’s because the utilities want the flexibility to have short-term contracts, or even buy coal on the spot market, since natural gas continues to be a competitive option.

Looking ahead, though, there doesn’t appear to be a declining demand curve for coal. Consider this: in Africa, some 60 percent of the continent’s population, or more than 600 million people, do not have access to electricity. The EIA predicts African coal consumption will rise by 70 percent by 2040. In India, another big consumer of coal, 300 million people remain disconnected to the electricity grid. The country plans to increase its use of renewable energy by 15 percent by 2020, but still faces the challenge of energy demand exceeding supply by 10 percent.

Coal is a likely contender to fill that gap. A recent article in Australian Mining states that by 2025, India’s electricity generation from coal will be reduced from 60 percent to “only 50 percent of installed generation – but that doesn’t necessarily mean less coal generation.”

In the end, it all comes down to price and government policies. If the economics of coal can be beaten by other electricity sources, the old-school fuel will face pressure, as it already has in the U.S. But as market forces continue to drive the various options available for utilities, coal use — particularly in developing nations — is almost certain to go up. Unless governments enact American-style laws to sharply curtail coal power plant emissions, expect King Coal to retain its crown.

Read more at OilPrice.com

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