Throughout the Midwest, where the U.S. has immense industrial demand and massive coal reserves, they built coal-fired power plants. In large growing urban centers, they constructed nuclear power plants. Natural gas was used to supplement much of the demand during peak periods. The U.S. has a stable set of power plants that relies on a diverse fuel mix.
Power generation grew at a huge clip during the 1990s along with the economy. On more than one occasion, lobbyists from different energy-related organizations could be heard saying something along the lines of… “We’re not so much interested in growing our piece of the pie as much as growing the entire pie.” At the time, there seemed to be a tacit agreement that the fuel providers would not knock each other.
U.S. power generation from 1989 to 2009 grew by 34%, from 2.8 billion kW-hr to 3.8 billion kW-hr, according to the Energy Information Administration (www.eia.gov). From 1989-1999, it grew 24%, and if it weren’t for economic malaise, it would be much higher today. During that same time, coal’s share of market dropped from 55% in 1989 to 53% in 1999 to 46% in 2009. Nuclear, hydroelectric and other, remained fairly steady (21%, 9% and 4% respectively). Natural gas grew from 10% in 1989 to 13% in 1999 to 22% in 2009. Coal has always been viewed as the cheapest base load fuel and the U.S. hedged its energy mix with coal-fired power. Utilities could not build any more nuclear capacity. Hydroelectic stood at the mercy of Mother Nature. Natural gas prices have always been considered rather volatile until recently.
Times have changed. Today the U.S. finds itself awash in inexpensive natural gas with low power demand as a result of the economic decline. In a new competitive environment, the gloves have come off. The oil and natural gas lobbies tout natural gas as the “clean burning fuel.” The nuclear industry for a brief period had some environmentalists onboard with its “emissions-free” power. Both groups now actively compete against future coal-based projects around the country.
No doubt, many Americans are awakening to new energy discoveries in the U.S. The Bakken oilfield and the oil shale found in the Green River formation have drawn a lot of attention recently. So has the gas contained in the Marcellus Shale formation. Calculating oil and natural gas reserves can be tricky. They are not usually as cut-and-dry as tons of coal. In August, the U.S. Geological Survey announced it had upgraded Marcellus Shale gas reserves to 84 trillion cu ft. That’s significant considering the agency thought the reserve stood at 2 trillion cu ft in 2002. It’s also dramatically less than the 410 trillion cu ft the EIA has on the books.
Many people, including the current administration and credible environmental groups, may have been misled by overblown natural gas reserves. Recessions end. Demand for power will grow again, perhaps rapidly, and price volatility will return to natural gas markets. The U.S. should continue to hedge with coal-fired power. Wrong decisions today based on more faulty data could severely hamstring future growth potential.
