Why Natural Gas Could Save Coal

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Natural gas is an increasingly abundant resource in the United States. It's so cheap that it's being integrated into the transportation sector, which sets the stage for lower fuel costs. That, in turn, could lead to cost savings for transporting coal by rail -- which would make coal used for power cheaper. 

Gas is great!
Natural gas is a wonderful fuel because it burns more cleanly than coal. However, the usefulness of a fuel is a combination of cost, environment, and energy. In the United States, natural gas is cheap and abundant because of shale drilling. That's led a host of industries to convert to using gas.

For example, Waste Management (NYSE: WM  ) has more than 2,200 natural gas powered vehicles and recently opened its 50th natural gas fueling station. Every natural-gas truck it buys means it avoids buying 8,000 gallons of diesel. No wonder the trash-hauling industry has made such a concerted shift toward natural gas, increasing such truck purchases from less than 10% of annual acquisitions to more than 60% in just five years.

Long-haul trucks are on the verge of following Waste Management and other trash haulers down a similar path. There's the potential to increase natural gas truck purchases from less than 1% of new purchases to more than one-third in the next five years.

United Parcel Service (NYSE: UPS  ) , for example, has made a commitment to purchase 1,000 long-haul trucks powered by liquefied natural gas. That will add to its already impressive total of more than 2,700 natural gas vehicles (most of which are not long-haul trucks).

How big a deal is this switch to LNG? United Parcel Service says that it can reduce fuel costs by 30% to 40% based on recent natural gas prices. No wonder Waste Management has been buying so many natural gas vehicles. And now that long-haul LNG trucks are increasingly available, including financing supported by a Clean Energy Fuels and General Electric (NYSE: GE  ) partnership, it seems likely that the trucking industry is ready to start the shift, too.

But what about coal?
That's where trains come into play. GE is also working with CSX (NASDAQ: CSX  ) to test new gear that will allow a train to run on either natural gas or diesel. Assuming train companies pay about the same amount for fuel as truckers, that could lead to cost savings of up to 40% a year on fuel. Trains have run largely on diesel for around 50 years, so this switch is historic. And it sets up an interesting situation for coal.

According to the U.S. Energy Information Administration, trains transport about 70% of the coal electric utilities use, and transportation makes up about 40% of the end-cost of using coal. This makes rail costs a big part of the equation in the choice between coal or natural gas. Between 2000 and 2010, the cost to ship coal increased 50%. Companies like CSX didn't have much choice but to raise prices, however, because its costs were heading higher.

Source: EIA 

Assuming CSX and GE can make the switch to natural gas work, fuel-cost savings would likely be passed onto customers. At the same time, demand for natural gas will be increasing in the trucking (UPS) and train spaces, with an abundance of GE's help, which supports natural gas prices. Thus, the cost-benefit analysis might just start to favor coal in a more meaningful way.

Not unique
Don't dismiss this scenario. The cost of natural gas in Germany has led gas-fueled power plants to operate at a loss. With cheap and abundant coal, U.S. utilities won't need much of a push to shift their mix back in favor of the fuel.

Watch UPS to see if it can follow the lead of Waste Management, which will provide further evidence that GE and CSX can pull off a similar train switch. If the dominoes fall right, the next five years could be good to coal.

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Read/Post Comments (6) | Recommend This Article (2)

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  • Report this Comment On December 08, 2013, at 5:37 PM, Bearbully wrote:

    This is so much in flux I'll just have to say: Waiting to see where this leads.

    With the Obama Administrations statement that he wouldn't ban coal but he would make coal too expensive to use, what is Your best guess?

    We need refineries and piplines if we want to even temporarily resolve our energy issues.

    Whee id Nuclear? At least that doesn't create so much in the way of greenhouse gasses.

    And what about all those leaks of methane which is about 20 times worse than CO2?

  • Report this Comment On December 09, 2013, at 7:28 AM, deecee53 wrote:

    If the coal burning plants had taken advantage of govt. help to scrub smokestack emissions ,coal would still be the fuel of choice.Air pollution from smokestack emissions is STILL coals biggest draw back.How much would it cost to add the scrubbers to lower emissions cost compared to an overhaul to change what fuel is used?? The carbon credits game changed the focus away from less pollution to swapping credits between coal plants and lesser polluting hydro and others. Same amount of smoke

    stack emissions from coal,just traded off on paper. A new process to convert carbon dioxide to fuel could change all that too.

  • Report this Comment On December 09, 2013, at 7:29 AM, deecee53 wrote:

    You'd think since methane is a fuel too,that the drillers would try to save as much of it as they could??.

  • Report this Comment On December 09, 2013, at 11:55 AM, derrickhand300 wrote:

    Is UPS REALY burning Liquified Natural Gas- or Compressed Natural Gas?

    I was not aware LNG could be burned as fuel-that it had to be converted back to CNG to be used as a fuel...

    My understanding was LNG was supercooled natural gas so its in liquid form and CNG is compressed natural gas in the vapor form...

  • Report this Comment On December 09, 2013, at 4:59 PM, JStephenCleghorn wrote:

    Look this over, Mr Brewer, along with many other reports and studies that indicate that, with respect to climate change, natural gas is a big part of the problem, not the solution. Do you want to be part of yet another generation that invests in the destruction of the climate and life on earth as we know it?

  • Report this Comment On December 10, 2013, at 12:32 AM, Bryanleger wrote:

    LNG can and has been used as a fuel for long haul trucks. Because the liquid is so cold (about -260 degrees F it takes very little heat input to vaporize to a gas. Ambient air heat exchangers provide plenty of heat to do this or the hot radiator fluid would work just as well in a shell and tube heat exchanger. Long haul trucks would not work well using CNG simply because of the amount of fuel that they consume. LNG is about 600 times as dense as natural gas at atmospheric pressure. The real challenge is the number LNG filling stations.

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