Daily Management Review

Reuters: The world sets to switch to less environmentally friendly fuels


Prices for natural gas are rising and will continue to do so as the supply is getting harder to come by. Consumer nations are thus turning more and more to less eco-friendly and less affordable alternatives, according to Reuters.

Land Management Bureau via flickr
Land Management Bureau via flickr
According to S&P Global Commodity Insights, as of August 12, gas was roughly twice as expensive as diesel, although high-sulfur fuel oil and coal are still affordable.

Similar circumstances exist in Europe, where natural gas trades for roughly $60 per 1,000 cubic feet, making it at least three times more expensive than propane and high-sulfur fuel oil.

According to Steve Sawyer of FGE, "Supply could be particularly tight this winter, causing many countries to announce they will permit power plants to raise their usage of heavy fuel oil and coal… It's likely already in use if there is a way to swiftly transition from using natural gas to using another fuel". Goldman Sachs' Damien Courvalin predicts that switching from gas to oil for power generation over the winter will result in an increase in oil demand of 1.5 million barrels per day as opposed to 1 million barrels per day last year. He stated in an interview with Bloomberg that the additional demand will come from the manufacturing and energy sectors.

However, due to a lack of fuel oil-fired power plants and the challenges associated with restarting coal- and oil-fired power plants, the scale of the transition is constrained.

According to Sawyer, "the effective restart of these plants hinges on how meticulously they were mothballed and the subsequent care." He predicted that the restart procedure would take a while.

Even so, it's difficult to overlook the cost of switching to less environmentally favorable fuels. FGE anticipates widespread support for restarting coal- and oil-fired power units. Sawyer added, "However, this procedure should begin now so that these facilities may be used in the winter."

source: reuters.com, bloomberg.com