Despite President Donald Trump's ambitious efforts to revive the coal industry in the U.S., coal is unlikely to last in the country due to its relatively high cost, an expert told Anadolu Agency on Friday.
Trump signed an executive order on March 28 directing the U.S' Environmental Protection Agency to roll back his predecessor Barack Obama's Clean Power Plan, which planned to close hundreds of coal-fired power plants.
With his campaign promise of 'more jobs' in the U.S., the President told coal miners on signing day, 'You know what this says? You're going back to work.'
However, between 2010 and 2016, 251 coal plants were retired out of a total 523, according to the environmental organization, the Sierra Club. This means 48 percent of all coal plants were closed over seven years, leaving 272 still operational.
While coal production is in decline in the country, it is also more pollutant and expensive to produce compared to natural gas.
'There is no way that the Trump administration will be able to do anything except postpone the inevitable for coal,' Ed Hirs, an economist at the University of Houston said.
'I don't think coal is going to last. Natural gas is extremely inexpensive to produce ... without considering the cleanup, without considering the capital cost, without considering that coal is much more labor intensive, natural gas is winning this battle,' he explained.
Between 2000 and 2008, coal was less expensive than natural gas, and supplied about 50 percent of total electricity output in the U.S, according to the Energy Information Administration (EIA). The price gap between the two resources started narrowing at the beginning of 2009, with the 'shale revolution' and rising gas production in the U.S.
The use of natural gas first exceeded that of coal as the primary resource for electricity generation in the U.S. on a monthly basis in April 2015, and on an annual basis in 2016, according to the EIA.
The U.S.' natural gas production rose 24 percent to 747 billion cubic meters (bcm) in 2016, from 603 bcm in 2010. Between those seven years, coal production in the country fell 32 percent, from 1.08 billion short tons to 0.73 billion short tons. In 2016, coal production in the U.S. reached its lowest annual level since 1978, the EIA data showed.
'Once we get [gas] pipelines built across the nation, and bring gas to the consuming regions, and we have reliable gas delivery, coal plants will be closed. They are just too expensive to operate,' Hirs said.
- U.S. oil industry
While the U.S. natural gas sector is enjoying increased production, the American oil industry is still recovering from the low price environment that had started almost three years ago.
'We went through 200 plus bankruptcies. Most of those were shale producers. So now those assets have been recapitalized and refinanced,' Hirs said.
During the downturn in the global oil market 'there were 5,000 wells that were drilled but not completed. So, those wells are the first ones to come online apart from the new drills,' he added.
Oil prices stabilized around $50-$55 per barrels during the past months when OPEC countries and Russia began trimming their production levels. This provided enough incentive for American oil firms to bring their rigs back online and increase their outputs.
The oil rig count in the U.S., which is an indicator of the well-being of the industry, has risen for 15 consecutive weeks, according to oilfield services company Baker Hughes data.
'Many of the shale oil companies in the U.S. are hanging on right now. $50 a barrel WTI [West Texas Intermediate] translates into about $42 a barrel [cost] in the field. Only in the Permian do we see an explosion in new production. Other shale plays are really working hard to keep their businesses open,' Hirs explained.
Since the day OPEC and Russia agreed to trim their outputs on Nov. 30, U.S. oil production increased from 8.7 million barrels per day (mbpd) to 9.3 mbpd, or by 6.9 percent over five months, according to the EIA.
'Oil prices need to be higher, or the cost needs to be driven lower, for $50 a barrel to be a benchmark that's useful for the shale industry in the U.S.,' Hirs said.
With intensifying worries over rising global oversupply, however, prices declined almost 5 percent on Thursday -- WTI fell to $45.31 a barrel, while Brent plummeted to $48.17 per barrel.
The American oil industry can find itself under risk once again, but new technologies can offer a solution in efficiency and in lowering costs of production.
'During the downturn when folks were not working in the field, they were working in laboratories to determine new technologies ... We are seeing permanent recoveries of 30 to 40 percent in these wells,' Hirs said.
'We have a lot of scientists working in a lot of areas. And if they can capture the right recipe or the correct technique in improving production, that would help drive [break-even] prices down,' he added.
- The output cut deal
The expert added that whether OPEC and non-OPEC countries extend their production cuts into the second half of the year depends on Saudi Arabia and Russia.
'The Saudis are the most at risk with the IPO [initial public offering] of Saudi Aramco. And, it is in their interest to withdraw oil from the market. Statistics show that OPEC made some $88 billion [since Nov. 30] extra because they withdrew production from the market,' Hirs said.
Analysts argue that with lower production but higher prices, producing nations would generate more revenue, compared to a low price environment.
Saudi Arabia plans to hold its national oil company Aramco's IPO next year, and greater revenue would help the firm's stock price and market value increase, according to analysts.
By Ovunc Kutlu in New York
Anadolu Agency
ovunc.kutlu@aa.com.tr