Replacement of Coal by Fracgas in
the Production of Electric Power
Yale Graduates Energy Study Group
Robert Ames, Tyson Foods
Anthony Corridore, Lafarge NA
Edward Hirs, Hillhouse Resources, LLC & University of Houston
Paul MacAvoy, Williams Brothers Professor Emeritus
USAEE Houston Chapter
November 10, 2011
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1914656
[email protected]
Gas Production and Electricity
Gas - Electrric Sector Only
Gas (trillion cubic feet)
Shale Gas - All Production
10
8
6
4
2
2020
2018
2016
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
0
Coal Production in Electricity
Coal - Electric Sector Only
Coal (million st)
1400
1200
1000
800
600
400
200
2020
2018
2016
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
0
Coal and Gas Delivered Prices
Coal - Delivered Prices - Electric Power Sector (nominal $'s per short ton in logs)
Gas - Delivered Prices - Electric Power Sector (nominal $'s per thousand cubic feet in logs)
$/ln unit
$4.50
$4.00
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
$-
Cross Elasticity Estimates
Sereletis (cross elasticity): 0.064 for 1973 to 2007
Sereletis (Morishima elasticity of substitution):
0.201 for 1973 to 2007
Sereletis & Shahmoradi (Morishima): 0.307 to
0.480 (1996 to 2004)
Jones (linear logit coal to gas): 0.027 to 0.210
YGESG Elasticity Data
NL Coal Quantity (Tons)
Quantity
NL Coal Price (Tons)
NL Gas Price (Cubic Feet)
Price
20.8
4.0
20.8
3.5
20.7
3.0
20.7
2.5
20.6
20.6
2.0
20.5
1.5
20.5
1.0
20.4
0.5
20.4
2009P
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
0.0
1990
20.3
YGESG estimate
Regression equation:
NL(coal q) = a + b NL(gas P) + U
Intercept:
21.19
NL coal price: -0.26
NL gas price: 0.20
s
0.18
0.06
0.02
t-stat
117.17
-4.71
8.83
How much?
YGESG estimate: 0.20 X 50% equal to 10%
and not to exceed 20%.
Credit Suisse estimates 15% to 30%. This
requires new supplies of gas in the range
of 1.8 TCF to 3.7 TCF per year and the
infrastructure to move that new gas to
market.
Challenges—Pipelines
National pipeline infrastructure and storage
is geared to seasonal fills and draws for
heating and cooling.
Challenges—Pipelines
Challenges—Regulations
EPA regulatory resolve appears to be
weakening during 2012 campaign
Coal plants are a sunk cost for utilities
In the real world
New coal plants are being canceled—in coal
country
Why are coal plants being proposed in
Texas?
Why is the US gearing up to export gas?
Replacement of Coal by Fracgas in
the Production of Electric Power
Yale Graduates Energy Study Group
Robert Ames, Tyson Foods
Anthony Corridore, Lafarge NA
Edward Hirs, Hillhouse Resources, LLC & University of Houston
Paul MacAvoy, Williams Brothers Professor Emeritus
USAEE Houston Chapter
November 10, 2011
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1914656
[email protected]