Shale Gas Continues to Upset the Apple Cart

THE WALL STREET JOURNAL Energy Journal
Shale Gas Continues to Upset the Apple Cart

COAL OUT IN THE COLD

Plentiful shale gas is causing problems for the coal industry in Appalachia, an area of the eastern U.S., writes The Wall Street Journal’s Cassandra Sweet.

One key to the problem is pipelines. The gas produced from the Marcellus Shale can’t be pumped away as quickly as it is extracted, meaning that a glut has collected in Pennsylvania and West Virginia.

This is driving down electricity prices to the point where creating power from coal-burning makes little sense. Kentucky miners are also feeling the pressure.

Wholesale power prices generally track natural-gas prices. Nationally, these fell to under $2 per million British thermal units in 2012. The situation is more extreme in Pennsylvania. At one gas-trading hub, prices during October averaged $1.83 per million BTUs, half the average price of gas that month at the Henry Hub in Louisiana, where U.S. gas is benchmarked.

Coal is struggling to compete. For decades it accounted for more than half the electricity generated in the U.S., but its share declined to 37% last year.

Several merchant coal plants—which are run commercially, rather than being linked to large utilities—have stopped generating power, or are thinking about doing so.

The coal freed up by plentiful shale gas is also finding its way outside the U.S. The consumption of coal in Europe has increased as its price has fallen. In Germany, a moratorium on nuclear power introduced after the Fukushima nuclear disaster has led to a hike in coal use. The U.K., Italy and the Netherlands are also big consumers of U.S. coal.

A SLIPPERY ISSUE

The Organization of the Petroleum Exporting Countries is preparing to meet in Vienna this week, and tension in the group may be on the increase.

At issue: who should be responsible for cutting production if Iraq and Iran both return to the market next year.

OPEC expects world crude demand to fall next year. The group tries to balance supply with demand so that the price doesn’t fluctuate too wildly. It produces more than one in three barrels of oil globally.

Iran, which has been kept out of the oil loop, because of sanctions imposed in connection with its nuclear program, is pushing for Iraq to hold back production, write Benoît Faucon, Summer Said and Sarah Kent.

Saudi Arabia, Kuwait and the United Arab Emirates are all candidates to cut. Together, they account for more than half of OPEC’s output. But there is little consensus about who should take one for the team.

Oil traders, meanwhile, indicate that they care less about the group’s decisions than they used to. But the FT’s Javier Blas tweeted that OPEC is “always downplayed, until they cut output.”

Nevertheless, the balance of oil power is always fluctuating. In 2015, the U.S. may overtake Saudi Arabia as the world’s biggest oil producer, according to the International Energy Agency. If it ever began to export its crude, things might shift once again.

MARKETS

Crude oil futures were down slightly in London trading Monday, with supply and demand reasonably balanced, and ahead of a meeting of oil producers that begins tomorrow. The latest report can be read here.

Copyright 2013 Dow Jones & Company, Inc. All Rights Reserved.

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