Low natural gas prices are driving coal gasification out of business
If three planned gasification plants in Illinois are any indication, the transformation of coal into synthetic natural gas is staring at the destruction of their business model due primarily to low gas prices.
Plants that were to be operated by Nebraska-based Tenaska Inc., Power Holdings of Illinois and Leucadia National Corp. of New York are being mothballed, if not scrapped for good, according to this Chicago Tribune report today and other sources.
When plans were being finalized for these and other plants throughout parts of the U.S. in the 2005-2006 time frame, natural gas prices were floating between $12 and $13 per million British Thermal Units (BTUs). For the last month, natural gas contracts have been hovering around $2 per million BTUs. It doesn’t help that gasification is a very expensive technology that needs guaranteed buyers or other incentives to try to gain a foothold in power generation and retail gas supply markets.
Now, understandably, energy utilities are balking at paying for gasified coal because the shale gas boom, particularly in Pennsylvania and soon to the upper Midwest, can actually save utilities and their ratepayers money.
Illinois Gov. Pat Quinn signed legislation in 2011 giving utilities the option to purchase gasified coal to generate electricity and/or to supply their retail customers with natural gas or face rate hearings every two years. Utilities that signed a contract are crying foul for several reasons, not the least of which is the inflated costs they have to pass through to their customers to make money.
So here we have yet another example of less expensive energy trumping efforts not only to use home-grown energy but technologies built and designed by local or regional companies that create local jobs. What toll this trend will take on America’s clean energy landscape already is being felt wherever cleaner energy policies were enacted. How much a recovering economy and slow this trend is front-of-mind for just about everybody in the clean tech space.
Tenaska (photo) may return to its gasification blueprint. But that will likely require stabilized coal production costs and significantly higher natural gas prices.
Tenaska vice president Bart Ford said the plan allows “Illinois to take advantage of today’s low natural gas prices to build a necessary new source of electric power resulting in lower overall rates. In the future, when economics favor the use of Illinois coal, equipment can be added to convert coal to clean SNG (synthetic natural gas), capture carbon dioxide and provide for geologic storage,” according to this dispatch in the Illinois Times.
Geologic storage harbors significant potential if new coal plants somehow find there way into future power supply mixes. Here too, the odds of such technologies finding customers are growing longer each year natural gas prices are in the mid-to-low single digits.