Coal will thrive on global market if globalization breaks down

[PETER ZEIHAN]

Hey everybody, Peter Zeihan here coming to you from Document Valley above Denver, Colorado. Today we’re talking about coal. Coal has been the primary fuel of industrialization since industrialization started 150 200 years ago. But obviously, it has fallen on some tough times. And it has definitely fallen out of favor for carbon related and pollution related issues.

In the United States at its peak coal, in the modern era, coal was providing about half of all electricity generation, or was the thermal input for half of all electricity generation. So as much as everything else put together, and now it has slipped not just below natural gas, but it’s starting to duke it out with wind. And as of calendar year 2023. About 16% came from coal was already falling below nuclear on most days as well.

Anyway, the reason is twofold. The first one is politics, we have chosen to favor solar and wind in the fuel mix wherever possible, and that has displaced a little bit of coal. Not as much as you might think, though, coal is what we know is a baseload fuel, because you basically once you start the boiler, you don’t stop it, you can, you can kind of slowly tear it up and down. But getting a coal power plant fully running to full efficiency takes the better part of a day. And so if you are spinning it up and spinning it down every night, as the sun sets or rises, you’re not going to be using your coal nearly as efficiently. So like with nuclear, you tend to have the thing running full out the whole time, providing that baseload capacity and you leave it to things like natural gas that can be spun up faster, to handle all the incremental increases in demand.

So yes, solar and wind have had an impact that has been negative, but not a very big one. The big one has come from natural gas, unique among the world’s natural gas producers, the United States produces its natural gas as a byproduct of other operations, specifically, of oil production and natural gas liquids production in the shale fields. And the natural gas just kind of comes up as a byproduct.

Now, that’s not making it necessarily a classical waste product. But it is pretty close. Because people have to build take away capacity, get rid of the natural gas, even though they know that the margins for in the profit from it are not very high. So if you’re in the Bakken in North Dakota, or the Permian in New Mexico, and Texas or the eagle furred in southern Texas, you have a problem with natural gas, and you just have to get rid of it however you can. But remember that the shale revolution wasn’t originally about oil production, it was about natural gas production.

So we now have 20 years of expertise in producing pure natural gas or dry natural gas, as they like to call it. And even in those fields, where there is no oil or very little liquids at all, the cost production curve is very, very low. In fact, in a number of places like the Marcellus in Pennsylvania, and Ohio and West Virginia, the fullcycle breakeven price for a lot of natural gas production is well below $2 per 1000 cubic feet. And coal just can’t compete with that. In part, it’s because the really easy to exploit seems we’ve gotten 50 to 100 years ago. And in part, it’s because the there’s a population disconnect.

Most of our good cold the anthracite, the hard coal comes from places like the Powder River Basin, in the vicinity of Wyoming. And so it’s a long way to truck or rail that to a population center, or the other stuff is in Kentucky and West Virginia, which is usually about two minutes more polluting, not as much calorie content. And so it generally is burned more locally. And it’s not exactly a high demand product for other areas who are trying to reduce air pollution. Well, natural gas burns cleaner, it generates less fumes, it generates less carbon, it doesn’t have the sulfur byproducts. It doesn’t have mercury, there’s no natural gas ash for disposal on the other end. It’s just a simple, simpler process. Once you have the physical infrastructure in place, and this isn’t 2010 Folks, there are plenty of pipelines to take the natural gas away. So everyone who has wanted to convert from coal to natural gas pretty much has at this point. And all that’s left are the holdouts where the local economics make a little bit more sense for cold places like Kentucky, and West Virginia.

And there we have another problem. The two senators who have been most in favor of keeping coal in the fuel licks are Joe Manchin of West Virginia, and Mitch McConnell of Kentucky and both of them are in the process of stepping back from public life. It’s not that other representatives from this area won’t fill those shoes, but they won’t do what they saw with the same amount of gravitas. And so you’ve seen states throughout the Midwest and the South who used to be primarily coal powered, largely cut the fuel out of their fuel mix almost completely. And so the political coalition that has been protecting coal for the last 30 years is pretty much gone.

I don’t mean to suggest that we’re going to stop using coal completely in the next five years or anything like this, but it’s never coming back. Because most of the power plants the burn, the stuff are over 40 years old. And as a rule 40 years is about the lifecycle for a power plant, if you’re gonna extend it Life beyond that time you have to do some expensive refits, and you have to make sure that it’s going to make sense for you going 1020 30 years in the future. And for coal, that future isn’t very bright. If there is a future for American coal, it’s not going to be in America.

One of the things that people forget in an age of green politics is that oil and natural gas are the low carbon fossil fuels that are internationally traded. And if you break down globalization, the ability of large portions of the world to source those two fuels, withers and in that sort of environment, people will be clamoring for whatever sort of fuel they can get. And that will make them turn to American oil and natural gas of course, but will probably also give American coal, a fresh lease on life. It just won’t be burned here.