US Northeast states are devouring natural gas for electricity, and that's a problem for coal

Gas flare from an offshore oil rig platform.
Num Slyman | Getty Images

The Northeast U.S. states — a vast market that generates and consumes much of America's annual electricity — is gradually using less coal to fire up its electricity plants.

In part of what the Energy Information Administration called a dramatic 10-year shift, the nine states that comprise the Northeastern U.S.'s energy grid have collectively doubled the share of natural gas used to generate electricity—even as the region churned out slightly less power from 2006-2016. Simultaneously, coal-fired power tumbled from 31 percent to 11 percent, the EIA said in a report.

"Increased access to low-cost natural gas from the Marcellus Shale and other regional shale plays has driven the switch away from coal in the Northeast United States," the EIA said in a study last week. Analysts note that the cheaper and more plentiful natural gas becomes, the more incentive there is for producers to abandon coal.

"Environmental policies at the federal and regional level, such as production tax credits, the Regional Greenhouse Gas Initiative, and renewable portfolio standards, have also contributed to the decline in coal generation," the agency added.

Northeast 'a vanguard' of energy production

On a global scale, coal is still king, but its reign has become increasingly tenuous. The fuel source accounts for 41 percent of electricity generation worldwide, according to the World Coal Association, and in some countries that share is even higher. Massive demand from China — the world's largest energy consumer — has kept coal prices propped up higher.

Yet the Northeast's gradual migration to abundant natural gas — whose prices surged by more than 4 percent last week — is a reflection of its relative cheapness and comparatively beneficial environmental impact. Gas prices ended just shy of $3.50 last week.

The shift away from coal and oil to natural gas has been credited with helping to reduce carbon emissions.

"Northeast states have been at the vanguard of the changes that are transforming how electricity is produced and delivered in the U.S.," noted a 2016 report by M.J. Bradley and Associates, an environmental consulting firm. "The region has already experienced a major shift in the mix of resources used to produce electricity, with natural gas and renewables displacing older coal- and oil-fired power plants."

The EIA report left little doubt about coal's inexorable downward trend: Pennsylvania remains a key hub of coal-fired power, but its capacity has tumbled by 31 percent over the last decade. Coal generation in both New York and Connecticut plummeted by 90 percent during that time, with both states shedding millions of kilowatt hours (kWh).

The coal to natural gas switch in the Northeast is a microcosm of a dynamic taking place worldwide, as natural gas steals an increasing share of the global power mix.

The International Energy Agency anticipates that the world's use of natgas could surge by more than 50 percent from 2010's levels, and eventually account for at least ¼ of global energy demand by 2035. In fact, an increasing number of idle coal plants are being retrofitted to produce natural gas.

Meanwhile, President Donald Trump's plan to boost infrastructure spending and spur an increase in domestic energy production is likely to boost natural gas' profile in the U.S. energy mix, observers say.

"Trump's presidency presents some downside [nat gas] price risks as it could speed up pipeline infrastructure, allowing for a faster supply expansion," Bank of America-Merrill Lynch analysts noted last week. Gyrations in coal prices will be determined mostly by Chinese demand, the bank added.