- The degree to which natural gas replaces coal as a source of electricity generation in the U.S. by 2040 depends primarily on natural gas prices and that depends on still uncertain supply-demand factors, according to the U.S. Energy Information Administration.
- In all scenarios, increasing natural gas supplies drive replacement of coal for power generation both in private industrial applications, which will be 22% of the natural gas use increase through 2040, and on the grid, which will be 78% of the increased natural gas use.
- If natural gas supplies are high, the price will fall and it will replace coal sooner, whereas if shale reserves are not as large as anticipated the opposite will occur. In the most likely scenario, coal use will remain flat and natural gas will grow despite rising in price to $8.16 per million British thermal units (MMBtu) by 2040, almost three times coal’s projected 2040 price of $3.19 per MMBtu.
The EIA’s Annual Energy Outlook 2014 (AEO2014) offered three scenarios: a Reference case, a High Oil and Gas Resource case, and a Low Oil and Gas Resource case. Only if natural gas supplies are high will it be attractive enough to beat coal in 2040 through grid demand alone.
In the most likely Reference case, natural gas use will fall off through 2015 because supplies are undependable and the pipeline delivery infrastructure is not yet fully built out. Once supplies are more certain and the delivery infrastructure is in place, natural gas use will grow “steadily” through 2040.
The short term obstacles to natural gas growth will be only partially offset by the 22 gigawatts of coal generation capacity scheduled for retirement. From 2015 to 2020, environmental rules will lead to an expected 27 more gigawatts of coal generation capacity retirements.
By 2020, increased demand for natural gas is expected to push its price above $5.00 per MMBtu. After 2020, coal will not be economically competitive with natural gas because of higher construction costs and environmental rules.