replacement of coal by fracgas in the production of electric power yale graduates energy study group...
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Replacement of Coal by Fracgas in the Production of Electric Power
Yale Graduates Energy Study Group
Robert Ames, Tyson FoodsAnthony Corridore, Lafarge NA
Edward Hirs, Hillhouse Resources, LLC & University of HoustonPaul MacAvoy, Williams Brothers Professor Emeritus
USAEE Houston Chapter November 10, 2011
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1914656
Gas Production and Electricity
0
2
4
6
8
10
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
Gas - Electrric Sector Only Shale Gas - All ProductionGas (trillion cubic feet)
Coal Production in Electricity
0
200
400
600
800
1000
1200
1400
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
Coal - Electric Sector Only Coal (million st)
Coal and Gas Delivered Prices
$-
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Coal - Delivered Prices - Electric Power Sector (nominal $'s per short ton in logs)
Gas - Delivered Prices - Electric Power Sector (nominal $'s per thousand cubic feet in logs)$/ln unit
Cross Elasticity Estimates
Sereletis (cross elasticity): 0.064 for 1973 to 2007
Sereletis (Morishima elasticity of substitution): 0.201 for 1973 to 2007
Sereletis & Shahmoradi (Morishima): 0.307 to 0.480 (1996 to 2004)
Jones (linear logit coal to gas): 0.027 to 0.210
YGESG Elasticity Data
20.3
20.4
20.4
20.5
20.5
20.6
20.6
20.7
20.7
20.8
20.8
199
0
199
1
199
2
199
3
199
4
199
5
199
6
199
7
199
8
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9P
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
NL Coal Quantity (Tons) NL Coal Price (Tons) NL Gas Price (Cubic Feet) Price Quantity
YGESG estimate
Regression equation:
NL(coal q) = a + b NL(gas P) + U
s t-stat
Intercept: 21.19 0.18 117.17
NL coal price: -0.26 0.06 -4.71
NL gas price: 0.20 0.02 8.83
How much?
YGESG estimate: 0.20 X 50% equal to 10% and not to exceed 20%.
Credit Suisse estimates 15% to 30%. This requires new supplies of gas in the range of 1.8 TCF to 3.7 TCF per year and the infrastructure to move that new gas to market.
Challenges—Pipelines
National pipeline infrastructure and storage is geared to seasonal fills and draws for heating and cooling.
Challenges—Pipelines
Challenges—Regulations
EPA regulatory resolve appears to be weakening during 2012 campaign
Coal plants are a sunk cost for utilities
In the real world
New coal plants are being canceled—in coal country
Why are coal plants being proposed in Texas?
Why is the US gearing up to export gas?
Replacement of Coal by Fracgas in the Production of Electric Power
Yale Graduates Energy Study Group
Robert Ames, Tyson FoodsAnthony Corridore, Lafarge NA
Edward Hirs, Hillhouse Resources, LLC & University of HoustonPaul MacAvoy, Williams Brothers Professor Emeritus
USAEE Houston Chapter November 10, 2011
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1914656