Coal’s cost advantage hinders LNG conversions

  • Workers lay cement to build a concrete structure at a coal-fired power plant in Kudgi, India, in this 2015 file photo. Coal is currently about half the price on an energy-equivalent basis of the lowest-cost LNG delivered to western India, according to a Nov. 1 report by S&P Global Platts. (Photo/Aijaz Rahi/AP)

Cleaner only goes so far in producing electricity in cost-conscious countries, with coal holding a price advantage over imported natural gas.

The Paris-based International Energy Agency warned Nov. 13 that the relatively high cost of liquefied natural gas could deter buyers in developing markets where affordability is a primary concern.

“LNG is a relatively high-cost fuel. Investment in liquefaction, transportation and regasification adds a considerable premium to each delivered gas molecule,” the IEA’s World Energy Outlook report said. “Competition from other fuels and technologies, whether in the form of coal or renewables, loom large in the backdrop of buyer sentiment.”

Currently, coal is about half the price on an energy-equivalent basis of the lowest-cost LNG delivered to western India, according to a Nov. 1 report by S&P Global Platts. Even better for coal, it’s one-third the cost of the highest-priced LNG imported into the country.

The government needs to adopt tax policies and other incentives to promote coal-to-gas switching in India, because gas is unable to displace coal on an outright economic basis, according to delegates at a gas summit in India’s capital of New Delhi last month, as reported by Platts.

Natural gas demand — in particular, LNG demand — will continue to grow worldwide, but the IEA report acknowledged that cost is an ongoing issue.

“The LNG industry faces a struggle to gain a strong foothold in developing markets where affordability is a key consideration,” the report said.

China’s gas-demand growth rate has slipped this year, blamed on a weaker economy and a government decision to ease up on its coal-to-gas switching program. After a 17 percent gain in 2018, the country’s demand growth for gas is expected to slide to 10 percent this year, Reuters quoted an official of state-run Sinopec Gas on Oct. 15.

China is the world’s biggest coal consumer and has been trying to scale back its reliance on the dirtiest of fossil fuels for heat, electricity and industrial use to help clean up its air. But when more power is needed, coal is the fuel of choice.

When hot weather hit in July, the country’s coal imports jumped 21.4 percent from a month earlier as households and businesses cranked up their air conditioning, Reuters reported. Through July, China’s coal imports were up 7 percent from the same period in 2018.

And it’s not just imports that are up. The central government has been urging domestic coal miners to ramp up production to ensure enough supply. China’s miners dug out 10 percent more coal in June than a year ago, Reuters reported.

Global coal consumption inched ahead in 2017 and 2018 after two years of overall decline, according to BP’s 2019 Statistical Review of World Energy. Three-quarters of the growth in coal consumption in 2018 came from the Asia-Pacific region.

The IEA reported that coal is still generating about 38 percent of the world’s electricity, despite growing concerns over fossil-fuel emissions adding to the dangers of climate change.

The international agency reported that global greenhouse-gas pollution rose for a second year, ending a lull in emissions and putting the world on track for further increases through 2040 unless governments take more action.

In the first seven months of the year, 871 million tonnes of coal, including thermal coal for power plants and coking grades used to make steel, moved from suppliers to customers aboard oceangoing carriers, Reuters reported in August. That’s 2.1 percent higher than in the same period last year.

Asia was the main center of demand growth, with imports up 4.5 percent from the same period last year, mainly driven by China and India.

Even with lower demand for coal in more environmentally conscious nations, global consumption of coal will grow at an average 0.4 percent a year through 2050, according to U.S. Energy Information Administration forecasts.

The U.S., however, is going in the opposite direction for coal consumption. Coal-fired power plants in the U.S. are projected to supply about one-quarter of the nation’s electricity this year, down from almost a 50 percent share in 2008, according to the Energy Information Administration. Low gas prices have enabled the cleaner fuel to take market share away from coal.

China is not ignoring the air-quality issue, even with its coal. China Energy Group, the country’s biggest power generator, will add more than 6 gigawatts of new ultra-low emission coal-fired capacity this year as it works to meet growing electricity demand, a senior company official said this past summer. The company also expects to build an additional 5 gigawatts of low-emission capacity next year, according to a report by Reuters.

“China still has quite a big demand for electricity. The government now supports regions with poor wind and solar resources to use coal-fired power … it’s a more practical measure, as gas is still too expensive,” said Xiao Jianying, the head of the state-run firm’s coal-fired power department.

The higher cost of gas was seen in PetroChina’s third-quarter earnings report, when Asia’s largest oil and gas producer said its gas import business recorded a 21.76 billion yuan net loss (U.S. $3.09 billion) during the first nine months of this year. That’s worse than the 19.96 billion loss (U.S. $2.83 billion) recorded for the same period in 2018.

In all of 2018, PetroChina lost $3.7 billion on its gas imports, paying more for the fuel than it is allowed to charge under government price controls.

Nor has Japan abandoned coal. The August start-up of Tohoku Electric’s new coal power generation plant, Noshiro Unit 3, in Akita Prefecture is expected to displace some of the utility’s spot-market LNG gas purchases. The facility has a generation capacity of 600 megawatts and could displace about 100 million cubic feet of gas per day, equivalent to one LNG cargo per month, according to S&P Global Platts Analytics.

Larry Persily is a former Alaska journalist, state and federal official who has long tracked oil and gas markets and projects worldwide. He is the Atwood Chair of Journalism at the University of Alaska Anchorage School of Journalism and Public Communication.

Updated: 
11/20/2019 - 9:12am