Why natural gas has beaten coal in the last few years

The shale gas revolution

Over the past decade, companies have invested heavily in extracting gas from shale rock formations. The formations are thousands of meters underground. The process wasn’t economically possible until the 2000s.

Why natural gas has beaten coal in the last few years

New drilling and fracturing technology made shale gas extraction attractive for companies. This led to a shale gas boom in the mid-2000s. The shale boom led to a sharp fall in U.S. gas prices. Shale gas is now the biggest source of natural gas in the U.S.

Effect on natural gas prices

As extracting shale gas became easier, extraction costs fell. With new discoveries, production increased. Now, much more volume of natural gas is available for way cheaper than a decade ago. As natural gas prices fell, natural gas gained an edge versus coal—especially in the eastern and southern states. A decade ago, coal produced more than half the country’s electricity. Its share fell to 36% in June 2012, when natural gas prices plummeted close to all-time lows. The draft rules came out in June 2013.

So you can see that the move from coal to natural gas started before Obama and Republicans’ deadlock over new EPA regulations. The regulations are piling onto old troubles.

EIA projections

According to EIA (Energy Information Administration) projections, shale gas will keep growing. Plus, older coal-fired power plants are retiring and getting replaced. According the EIA, natural gas will surpass coal as the preferred fuel for electricity generation.

A change in the EPA’s regulations could prolong the lives of coal producers (KOL) like Alpha Natural Resources (ANR), Arch Coal (ACI), Peabody Energy (BTU), and Cloud Peak Energy (CLD). But no change could guarantee their survival.

Read on to the next part of this series to see the other key challenges facing the industry.