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High natural gas prices lead to increased coal generation, 2021 carbon emissions: EIA

Highlights

Energy sector CO2 emissions for 2021 set to rise 7%

Henry Hub to average $3.42/MMBtu for 2021

Higher natural gas prices are projected to contribute to an increase in energy sector carbon dioxide emissions as coal consumption rises, the US Energy Information Administration said Aug. 10.

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Carbon dioxide emissions from the energy sector will increase 7% to 4.9 billion mt in 2021 given growing economic activity, according to the EIA's Short-Term Energy Outlook. The sector's emissions fell 11% in 2020.

Notably, the projected 2021 increase in coal generation amid higher natural gas prices is partially to blame for the significant increase in climate-warming emissions. Coal-related CO2 emissions are expected to increase 17% this year as coal contributes a larger share of electricity.

"Despite significant growth in energy-related CO2 emissions as the US economy opens up, we don't see these emissions returning to pre-pandemic levels, at least in the short term," EIA Acting Administrator Steve Nalley said in a release.

In 2022, the agency expects the energy sector's CO2 emissions to rise another 1%, with coal's share of emissions falling 7%. Natural gas' share of power generation is projected in 2021 to decline from 2020 levels.

High gas prices

The agency expects the Henry Hub spot price to average $3.71/MMBtu in the third quarter, averaging $3.42/MMBtu for the year compared with $2.03/MMBtu in 2020. The EIA expects that price to drop to $3.08/MMBtu on average in 2022 as production increases.

"Higher natural gas prices this year primarily reflect two factors: growth in liquefied natural gas exports and rising domestic natural gas consumption for sectors other than electric power," according to the outlook.

EIA pointed to those higher prices as part of its forecast that natural gas will contribute a smaller percentage of electricity compared with 2020 levels. Natural gas delivery prices for power generators are expected to average $4.46/MMBtu this year, a significant increase from the $2.39/MMBtu in 2020.

While gas fueled 39% of power generation in 2020, it is projected to account for about 36% of US electricity generation in 2021 and 37% in 2022. The EIA expects that coal generation will fill some of the gap, contributing 23% of power in 2021 and 21% in 2022 compared with 20% in 2020. Higher natural gas prices will make "coal more competitive for dispatch in the electric power sector," the agency said.

Nuclear energy's share of generation is expected to fall slightly this year and next because of retirements. Meanwhile, renewable energy sources, including hydropower, are expected to continue averaging 20% of generation in 2021 before ticking up to nearly 23% in 2022, according to the outlook.

Gas consumption is also expected to decline 1% to 82.5 Bcf/d year on year in 2021 despite increased demand from the industrial sector and combined consumption of the residential and commercial sectors over the period. In 2022, the agency expects the nation's natural gas consumption to average 83.8 Bcf/d.

"U.S. natural gas consumption declines in the forecast, in part, because electric power generators switch to coal from natural gas as a result of rising natural gas prices," according to the report. "Rising natural gas consumption in sectors other than the electric power results from expanding economic activity and colder winter temperatures in 2021 compared with 2020."

Interestingly, gas made up a larger share of fossil fuel generation than coal in the eastern US in July despite high prices that tend to "prompt gas-to-coal switching for electricity generation," the EIA said.

"This difference is partially because of a longer-term trend of decreasing capacity for coal-fired electricity generation and increasing natural gas-fired capacity," the EIA said. "Capacity for coal-fired electricity generation has decreased every year since 2011, and gas-fired capacity has increased every year since at least 2009."