Coal and Natural Gas Are Foes, Not Natural Allies
The bilateral trade agreement between the United States and China announced last week is good news on both sides of the Pacific, and one of the biggest winners is the U.S. natural gas industry. But what is good news for natural gas may be another nail in the coffin for coal.
The recent trade agreement will facilitate China’s goal of replacing coal, which it has tapped to meet two-thirds of its energy needs for the past 30 high-growth years, with cleaner-burning natural gas. The deal would expand U.S. natural gas exports to China, including joint investment in the infrastructure that country needs to process the gas.
President Trump has promised to promote natural gas – and turn around the fate of coal. But the two forms of energy are in competition with each other. Helping one hurts the other. The biggest problem the coal industry faces right now is the declining price of natural gas, driven by the glut on the market. One law that no one can repeal is the law of supply and demand. The more gas available, the lower the price. The lower the price of natural gas, the harder it is for coal to compete. Nonetheless, President Trump has twinned the fate of coal and gas, in his mind or at least in his promises, vowing to bolster both simultaneously. During last year’s presidential election he promised: “The shale revolution will unleash massive wealth for America. And we will end the war on coal and the war on miners.” That’s like saying that Henry Ford’s creation of the moving assembly line would help stimulate sales of the Model T and the horseless carriage. In fact, the steps that the Trump administration is taking to bolster natural gas—such as promising to take advantage of an “estimated $50 trillion in untapped shale, oil and natural gas reserves” in the United States, much of it on federal lands – may help the economy, but they would also create more headaches for the coal industry.
And even more for people who work for the industry, which was eliminating jobs even when it was on a competitive footing. Until about the year 2000, coal processing was relatively cheap, and coal was maintaining its position as the preferred supplier for utilities and maintaining a 50 percent share of the U.S. power supply. But even as coal continued to compete, the industry provided fewer and fewer jobs. From more than 140,000 employees in 1989, it dropped to only 85,000 in 1999, after 10 years of competitive growth, according to the Bureau of Labor Statistics. What drove the workforce reductions? Technology and improved production techniques, not increasing regulations or declining demand. For example, surface mining techniques, especially in the west, required far fewer employees per ton of coal produced.
Today, the biggest challenge the coal industry faces is clearly natural gas, with production growing by a third and prices dropping 70 percent, largely because of the shale gas revolution. In 2015, for the first time ever, natural gas topped coal as the primary source of electric power generation – a dramatic change from five years earlier, when coal accounted for twice as much of the mix as natural gas. Declining natural gas prices have led to “55 percent growth in natural gas-fired electric generation since 2006,” the Bloomberg Intelligence report found last year. By 2020, electric utilities plan to retire plants with 12 gigawatts worth of coal-fired capacity.
The trade deal with China is yet another blow to the coal mining industry. Like any trade deal, the agreement with China will benefit both sides, including U.S. beef ranchers and financial service firms, and of course consumers in both countries. And it will indeed bolster the U.S. natural gas industry. But at whose expense? Rather than sharing a common fate, coal and gas are in a fight to the finish – and natural gas has all of the weapons.