If this is supposed to be the golden age of natural gas, nobody appears to have told Asia, where coal is set to remain king given its huge price advantage and supply abundance. One of the themes at the Singapore International Energy Week has been whether Asia should be using gas for power generation as it?s a cleaner-burning fuel than coal.
But even if Asian governments were concerned about carbon pollution and determined to do something about it, the economics of gas-fired generation just don?t stack.
A gas-fired power plant is about two and a half times more expensive to fuel than a coal-fired one in Asia, while in the US gas generation is about 15 % cheaper than coal. Spot liquefied natural gas to Japan currently costs about $17.10 per million British thermal units (Btu), while spot coal from Australia?s Newcastle port, the regional benchmark, is $117.13 a tonne. Based on average efficiency and utilisation of power plants, one tonne of coal produces 2,460 kilowatt hours. To produce the same amount from gas requires 17.22 million Btu.
This means that to generate the same amount of electricity as one tonne of coal, $294 of gas would be required using spot LNG prices in Japan. In the United States, it would take just $65 of gas while in Britain it would cost closer to $182.
While gas is cheaper to use in the US given the low price of about $3.75 per million Btu, it must also be borne in mind that coal is less costly as well, trading around $77 a tonne, well below the Australian price and the similar European price of about $116.75.
Another factor to bear in mind is that there are other costs associated with using coal and gas in Europe such as carbon emission permits, which will erode some of coal?s cost advantage.
And of course the cost of fuel is not the only factor determining whether coal or gas is cheaper, there are things such as the capital costs of the plant and maintenance costs, both of which favour gas. But overall, it?s clear that coal is very cheap in Asia, cheaper than gas in Europe and more expensive than gas in the US.
This isn?t to say that gas will languish, indeed there are strong projections for increased usage in Asia.
It?s just that coal will continue to underpin power generation in Asia and certainly won?t be displaced by gas, as it may in the US and Europe. The International Energy Agency expects China?s gas usage to climb to 260 billion cubic metres (bcm) in 2016 from 110 bcm last year. Coal usage is also expected to rise from 3.4 billion tonne in 2010 to 4.6 billion by 2020, according to a study by FACTS Global Energy.
It?s possible domestic output of coal in China may rise to an annual 4 billion tonne in coming years from 3.24 billion in 2010, but this will still leave a shortfall of 600 million tonne to be met by imports.
Given China imported some 182 million tonne last year, it means that it will likely triple its imports, underpinning the mine expansion projects in major exporters Australia and Indonesia.
China will also be competing with other Asian nations for coal, as Southeast Asia?s coal-fired generation is expected to rise to 38% of the total by 2020 , according to a report by consultants Wood Mackenzie.
At the same time, China?s use of coal for power will drop to about 75% from around 80%, which does show a move to gas, nuclear and renewables, but nowhere at a pace to prevent the total volumes of coal being used rising rapidly given the expansion of total generating capacity.
There is already a shift underway in Southeast Asia to cheaper coal as domestic gas supplies dwindle and countries take advantage of high export prices for gas and cheap import costs for coal. When it comes to securing electricity supplies, the adage money talks, everything else walks still applies. And in Asia, it?s coal that talks loudest.
The author is a Reuters market analyst. The views expressed are his own.