Focus: Natural Gas vs. Coal

Critical Choices

Critical Choices

Apr. 28, 2013

The most cited disadvantage of coal is the amount of pollution is creates when burned. Not only could this affect Dominican Republic's carbon emissions, but it could also have an impact on the balance of trade if prices for thermal coal rise on the global market. On the positive side, global thermal coal supplies are still plentiful, while modern technology has greatly lowered the impact of the pollution emitted. While building a new coal-fired thermal power plant (TPP) might make financial sense, converting older generation coal-fired TPPs to natural gas is cheaper still. However, the close presence of the US, a major thermal coal producer and exporter, could ensure a regular supply should coal prices follow a steady trend.

The advantages of natural gas are well known, being far cheaper than fuel oil TPPs to run, especially in the light of recent world oil price trends. The level of carbon emissions is also much lower. The Dominican Republic already has the basic infrastructure to make the transition to natural gas, with an LNG terminal in Santo Domingo that has a capacity of 160,000 cubic meters. The facility receives shipments of 120,000 cubic meters of gas every month, which helps to power three gas-fired TPPs producing 30% of the country's total power needs. There is a steady supply of natural gas emerging from the US, especially following the shale gas revolution. The US exported some 69 billion cubic feet of liquefied natural gas in 2012 alone, with outstanding permits for further export possibly pushing that figure up to 100 billion cubic feet within a few years. However, once again price remains an issue. Although domestic natural gas spot prices in the US trended below $1 per million BTU in late 2012, cold weather has seen the spot price test the $4 barrier over 1Q2013. Even though this price is still far lower than the price of fuel oil, it has demonstrated a speculative element that could count against it. Long-term contracts could help lock in a more regular pricing model for the Dominican Republic, as the US has more gas being produced than it has the capacity to transport, let alone export. And long-term supply contracts remain the main pricing model internationally for gas exporters.

For countries like the Dominican Republic that have little or no fossil fuels, it is always going to be difficult and expensive to meet its electricity needs. For now, a mix between coal, gas, and renewables is the likely road ahead. While much is spoken of the theoretical possibility of renewables, the fact remains that for the Dominican Republic the choice will lie between coal or natural gas as the main source to power the economy.