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Pa. key player in U.S. energy renaissance

Saturday, Jan. 4, 2014, 9:00 p.m.
 

Government regulations and the rivalry between coal and natural gas will continue to dominate the nation's energy picture in 2014, and Pennsylvania remains key to production, experts say.

Analysts expect an improving economy will boost demand for electricity and oil. That oil increasingly will come from domestic sources, which could further improve the economy, while utilities rely more on natural gas to replace outdated, coal-fired power plants and meet growing demand.

“Overall, we're just at this critical juncture for energy development,” said Rayola Dougher, a senior economic adviser for the American Petroleum Institute. The industry group strives to ease government restrictions.

“The outlook for natural gas is a very big one,” said James Stevenson, an energy analyst at Colorado-based IHS. “Coal and gas are so competitive in terms of price, they're in a sweet spot.”

Government and market decisions expected in 2014 that might impact prices and energy development include new limits on carbon emissions at power plants, lifting a nearly 40-year ban on crude oil exports, expanding oil and gas pipelines, and approving more ports for shipping liquefied natural gas overseas.

Experts say they're watching whether India will buy more metallurgical coal from the United States or Australia, whether Japan revives its nuclear power program or buys more American coal or gas, and how changes in Mexico's energy policy might open that country's resources.

“You can see that there's a knife's edge with regard to how much it costs to get coal or gas out of the ground, and if one of the factors changes, you may need to go somewhere else,” said Tom Hoffman of Upper St. Clair, president of Carbon Communications Consultants and a former executive of Cecil-based Consol Energy Inc.

Marcellus shale-rich Pennsylvania, which the Energy Information Administration last month called the fastest-growing gas-producing state, plays a key role in the energy market.

The state Supreme Court last month in a landmark decision gave local governments more say in where companies can drill. Regulators and drillers will spend a few months sorting that out. On Thursday, the state asked the justices to reconsider their decision.

“Determining what the regulatory certainty or uncertainty is going to look like ... will dictate the direction of the industry,” said Steve Forde, a spokesman for the Marcellus Shale Coalition, a lobbying group for the industry.

Ten years after Fort Worth-based Range Resources first tapped the Marcellus, the industry and state are at a crossroads looking at what to do with all the gas and byproducts, Hoffman and Forde said. Like other gas drillers, Range has since established operations in Western Pennsylvania.

“How much of the natural gas produced here will stay here? Will that lead to the renaissance?” Hoffman asked. “Do we look to the last 10 years as a guide, or look to something else?”

Energy companies are providing some answers.

Consol, long a giant in Appalachian coal mining, sold five West Virginia mines to focus on natural gas drilling and is investing billions of dollars in land and infrastructure.

Royal Dutch Shell appears increasingly likely to build a multibillion-dollar petrochemical plant in Beaver County that would use byproducts from gas produced here.

DTE Energy, a Detroit-based electric and natural gas utility, invested heavily in the Bluestone Gathering System and pipelines in Pennsylvania and New York, and proposes a $1.5 billion pipeline stretching from Western Pennsylvania to Michigan and Ontario.

“Pennsylvania is a very attractive place to be,” said David Meador, vice chairman and chief administrative officer at DTE. He said new pipelines need more capacity as demand grows.

Coal isn't dead

Finding uses for drilling byproducts and markets for liquefied natural gas will help companies that are operating on profit margins narrowed by low gas prices, observers said.

Prices likely will rise over the next decade, the EIA says in its 2014 projection. That won't stop cleaner-burning gas from overtaking coal as the primary fuel for power generation by 2035, the agency and others said.

“Companies are becoming more focused on gas. That's the direction we're going,” Stevenson said.

Many utilities are closing coal-burning plants that got too old and expensive to meet air pollution guidelines or operate profitably. Emission limits by June from the Environmental Protection Agency could hasten that.

Meador said he expects the process to go more smoothly than some predicted because gas-powered plants or converted plants could come online as rules take effect.

“Done right, the country will pace this,” he said.

An extreme jump in demand during the transition could strain electrical grids, though, he said.

The EIA predicts enough of an increase in demand over the next two years that coal production probably will rise during that period. Most utilities still rely on coal-powered plants.

“Those plants that stay in the system, they will run harder and harder, consuming more coal,” Hoffman predicted.

Looking overseas

Coal companies found some relief from the pinch by exporting metallurgical coal for use in steelmaking. Experts predict India will surpass China as the world's largest importer of that product.

When Consol sold its mines, it kept four that produce coking coal. Hoffman said that shows a continued emphasis on exportable coal.

But there's competition: Australia could sell metallurgical coal more cheaply as it reopens mines closed by flooding in 2011, analysts say.

Still, companies are building three large coal export terminals on the West Coast with the hope of selling to Korea and Japan, Stevenson said.

The gas industry last year celebrated the approval of five export terminals for liquefied natural gas. But Dougher noted competitors are building 63 facilities around the world.

“We have these opportunities, but now we need government to get behind that,” she said.

Domestic oil production is surging because drilling in shale formations in Texas and North Dakota added a million barrels a day. Oil companies can make more money by selling it abroad.

Energy Secretary Ernest Moniz said last month that it was time to reconsider bans on exporting crude oil that were enacted during the energy crisis of the 1970s. Several lawmakers promised to fight any such move in 2014.

David Conti is a staff writer forTrib Total Media. Reach him at 412-388-5802 or dconti@tribweb.com.

 

 

 
 


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