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Prices of Various Energy Sources
25 Jan, 2010 04:14 pm
As we continue to develop biomass as a renewable source of energy, it is important to keep the cost of energy in mind, because this has a very strong influence on the choices governments and individuals will make. I sometimes hear people ask "Why are we still using dirty coal?" You will see why in this post.
It didn't take very long for me to find out the answer to that. It is because wood pellets are much more expensive than natural gas in North America. On top of that it takes more effort to use wood for energy than it does natural gas. That combination means that wood has a tough time competing with natural gas in North America.
When I was looking into that issue, I compiled a list of the price for various energy types on an energy equivalent basis. The price is as current as possible unless noted. I have converted everything into $/million BTU (MMBTU), and the sources are listed below.
My preference is to use EIA data over NYMEX data because the former is an archived, fixed number. I have included energy for heating and for various transportation options. For comparison I also included the cost of electricity and the cost of the ethanol subsidy/MMBTU of ethanol produced.
Current Energy Prices per Million BTU
Powder River Basin Coal - $0.56
Northern Appalachia Coal - $2.08
Natural gas - $5.67
Ethanol subsidy - $5.92
Petroleum - $13.56
Propane - $13.92
#2 Heating Oil - $15.33
Jet fuel - $16.01
Diesel - $16.21
Gasoline - $18.16
Wood pellets - $18.57
Ethanol - $24.74
Electricity - $34.03
It isn't difficult then to see why wood pellets have a difficult market in the U.S. For people with access to natural gas, they are going to prefer the lower price and convenience of natural gas over wood. For Europe, their natural gas supplies aren't nearly as secure, so they have more incentive to favor wood as an option.
The cost of the ethanol subsidy is interesting. We pay more for the ethanol subsidy than natural gas costs. However, if you consider that we are paying a subsidy on a per gallon basis - and a large fraction of that gallon of ethanol is fossil fuel-derived, the subsidy for the renewable component is really high.
For instance, if we consider a generous energy return on ethanol of 1.5 BTUs out per BTU in, that means the renewable component per gallon is only 1/3rd of a gallon. (An energy return of 1.5 indicates that it took 1 BTU of fossil fuel to produce 1.5 BTU of ethanol; hence the renewable component in that case is 1/3rd). That means that the subsidy on simply the renewable component is actually three times as high - $17.76/MMBTU. Bear in mind that this is only the subsidy; the consumer then has to pay $24.74/MMBTU for the ethanol itself.
Sources for Data
Petroleum - $13.56 (EIA World Average Price for 1/08/2010)
Northern Appalachia Coal - $2.08 (EIA Average Weekly Spot for 1/08/10)
Powder River Basin Coal - $0.56 (EIA Average Weekly Spot for 1/08/10)
Propane - $13.92 (EIA Mont Belvieu, TX Spot Price for 1/12/2010)
Natural gas - $5.67 (NYMEX contract for February 2010)
#2 Heating Oil - $15.33 (EIA New York Harbor Price for 1/12/2010)
Gasoline - $18.16 (EIA New York Harbor Price for 1/12/2010)
Diesel - $16.21 (EIA #2 Low Sulfur New York Harbor for 1/08/2010)
Jet fuel - (EIA New York Harbor for 1/12/2010)
Ethanol - $24.74 (NYMEX Spot for February 2010)
Wood pellets - $18.57 (Typical Wood Pellet Price for 1/12/2010)
Electricity - $34.03 (EIA Average Retail Price to Consumers for 2009)
Petroleum - 138,000 BTU/gal
Gasoline - 115,000 BTU/gal
Diesel - 131,000 BTU/gal
Ethanol - 76,000 BTU/gal
Heating oil 138,000 BTU/gal
Jet fuel - 135,000 BTU/gal
Propane - 91,500 BTU/gal
Northern Appalachia Coal - 13,000 BTU/lb
Powder River Basin Coal - 8,800 BTU/lb
Wood pellets - 7,000 BTU/lb
Electricity - 3,412 BTU/kWh
Originally posted on R-Squared blog
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This is an article that simply reflects how much consumers pay for energy. It is not an article that addresses all of the "What ifs", such as "What if we had to pay a price for carbon?" It is an article about what is. As such, it is accurate.
I would agree that this doesn't reflect what is needed to truly reflect the cost of carbon but it does make a dramatic difference to the numbers presented.
What I tried to do was select a specific area in the U.S. and stick with that from a bulk supplier of chips. The reason is to more or less show why we use some of the energy sources we use. In the case of most of the fossil fuels, I had East Coast pricing so I used East Coast pellet pricing. That is NOT the price in Amsterdam; per the link I used the price that reflected that of most New England producers.
Regardless, in the case of the U.S., we presently don't have a value for carbon credits, although that may change. We also have very cheap natural gas (as you do in much of Canada), and that may also change. But given the situation as is, wood pellets can't compete with natural gas in places that have ready access to natural gas. There may be some exceptions, but not a lot.
And I speak as someone who favors wood as an energy source. The purpose of the post was not to paint wood pellets in a bad light. I didn't know where they were going to fall until I started putting the table together. And I know that there are areas of the U.S. in which wood is going to probably come out on top; particularly where there is a lot of forest waste and poor access to natural gas.