The booming production of U.S. natural gas has depressed prices, making the commodity more appealing for consumers looking to heat their homes. But it has also begun to significantly impact other industries, and combined with federal regulations, it may sound the death knell for the future of coal in this country.
Coal simply doesn't burn as cleanly, producing twice as much carbon dioxide, four times as many nitrogen oxides, and nearly 13 times the sulfur dioxide per megawatt hour than natural gas.
The federal government's effort to reduce emissions through air pollution regulations means power generators are starting to open up to alternative fuels. Indeed, coal's share of the electricity-generating pie has already begun to decline, from 51% net electricity generation in 2003 to 43% through the first three quarters of this year. Natural gas's share is up to 25% from 17% over the same time period.
By 2016, there is potential that 10% to 20% of coal-fired generating capacity will be shut down. Changes have already begun to litter headlines across the U.S.:
- Oct. 17 -- Ohio: Proposed refinery changes original plan to fuel operations with natural gas instead of coal.
- Nov. 10 -- Texas: Lower Colorado River Authority receives EPA permit to modernize a power plant to run on natural gas.
- Dec. 2 -- Michigan: Consumers Energy plans to shut down some units and cancels plan for new low-emission coal plant.
American Electric Power
As coal plants shut down, companies are thinking differently about what type of plants they bring online. Duke Energy
It is no wonder, then, that coal stocks got crushed this year. Peabody Energy
Domestically, the days of coal-generated power are slowly coming to an end.
The world outside of coal
The coal industry is not the only one that natural gas production has begun to affect. The chemical industry is a big winner here, as many components of natural gas can be processed to make chemicals, plastics, and fertilizer.
Royal Dutch Shell
Natural gas is also creating new opportunities for steel manufacturers. Nucor
Foolish bottom line
Natural gas has the ability to disrupt many sectors of the American economy, from manufacturing to power generation. As regulations continue to roll out of Washington, it will be important for investors to think about how they affect companies beyond oil and gas exploration and production outfits.