Prices of Various Energy Sources
25 Jan, 2010 04:14 pm
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Reduce text sizeAs 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.
Last year I saw a presentation that projected very strong growth in wood pellet shipments from Canada and the U.S. into Europe. My first thought was "That doesn't sound very efficient. Why don't we just use those here in North America?"
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
Observations
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)
Conversion factors
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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Add to Newsvine| [1] | Comment by Mr Paul Adams - 26 Jan, 2010 04:26 pm This article is inaccurate as the price of pellets listed is at retail bagged prices not bulk and the BTU value is of low quality fuel. Softwood pellets from the Pacific Northwest have a BTU value of 8500. In additon, there is no mention on pricing carbon, it is the pricing of carbon and the strong cap and trade systems that promote pellet use in Europe. If you change the numbers to reflect these items a different picture is created. Also the numbers on coal prices are way out of wack. The picture of dirty coal or any fossil fuel use will only change if the real cost of carbon is inserted. |
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| [2] | Comment by Robert Rapier - 26 Jan, 2010 05:44 pm Paul, you are wrong about that. If you click on the link, you will see that those were bulk pellet prices - per ton. If I had used retail pricing, the situation would have been much worse. And you are correct that softwood has a higher BTU value, but it is also more expensive per the link I provided. Had I used softwood with the higher BTU value and higher price, it doesn't change the relative order in the list. 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. RR |
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| [3] | Comment by Paul Adams - 27 Jan, 2010 01:59 am I have to disagree with you Robert, I manufacture and sell pellets. The prices provided are prices in Europe and are based on an index price in Rotterdam. I sell a bulk tonne (MT) of softwood premium pellets for $140 in the domestic market and many manufacturers of low grade pellets will sell them for as low as $110. Carbon credits are real and not in the future, more so in europe and hence the export volume. For example here in British Columbia, Canada, a Carbon Credit is currently selling between $10 to $20 and you can factor 2.5 to 3.7 credits per ton of coal not burnt. So for a poor grade coal you can provide a credit of $37 to $74 per ton of reduced coal use on an annual basis, for high grade coal you can provide a credit of $25 to$50 per ton of reduced coal use on an annual basis. Hence if a ton of coal with a BTU value of 8,800 with a tonne of softwood premium pellets I would be selling that tonne of pellets for somewhere between $66 to $103 per tonne at the same BTU equivalent. 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. |
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| [4] | Comment by Robert Rapier - 27 Jan, 2010 02:40 am Paul, there is a lot of variation on all of these options. There are places where gasoline sells for very cheaply due to government subsidies - which can shift the picture above by a lot. 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. RR |
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| [5] | Comment by Mr Rick Burban - 17 Feb, 2010 02:32 pm I know that most of the people in my area are currently using wood pellets for their biomass systems. Recently i've been looking into the governments new scheme, the feed in tariff. Devon where i live gets quiet a lot of sun, not as much as the south east, but still quite alot. Have worked out that i would pay for the system within 8 years if i put in a 3.24kwp system. |
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