Here’s something different: Power plant operators would like to burn more coal, but they can’t get as much as they need.
The U.S. Energy Information Administration reported last week that it expects 6% less coal-fired generation this year than last year, but not because demand for it is down.
“Although coal-fired generation declined each year between 2014 and 2020, it rose 16% in 2021 as a result of increased electricity demand and higher natural gas prices following the pandemic. Despite natural gas prices remaining high, coal-fired generation has continued its previous trend of decline this year as a result of constrained coal supply,” the EIA reported.
According to the EIA, the delivered cost of natural gas for power generators nearly doubled between 2020 and 2021 while the delivered cost of coal increased by only 3%.
“The increase in natural gas prices caused the share of total natural gas-fired generation to fall to 37% in 2021 from 39% in 2020. In contrast, coal-fired generation increased in 2021 for the first time since 2014 and averaged 23% of U.S. generation, up from 20% in 2020,” the EIA said.
Most coal is delivered to power plants on long-term contracts, while the price of natural gas is less predictable in the long term.
“Most coal is delivered to power plants by railroads in the United States, which have encountered a number of disruptions this year. Although U.S. coal inventories have been declining in recent years as coal-fired generators have retired, the limitations on coal deliveries have further constrained generators’ ability to replenish stocks and increase generation. During the first seven months of 2022, coal inventories at power plants averaged 23% lower than in 2021,” the EIA reported.
That aligns with how Kevin Boone, CSX executive vice president for sales and marketing, described the market for transporting coal.
“Coal mines … have been undercapitalized, quite frankly, and now have a lot of money and they’re looking for equipment — reinvesting. And so, I anticipate it will get better. We also do have a mine coming online in the middle of next year that will help us, and we have a number of them that are still ramping up,” Boone said in a conference call with investment analysts two weeks ago.
“Production looks like it could be up next year, knock on wood. We probably would have said that last year at this time, too. …
“There’s clearly a need when you look at the utility coal mines are the utilities that we serve, particularly in the South. They have a lot of inventories; they need to replenish and so we anticipate a lot more consistent deliveries over the next year to really replenish those levels, and we continue to see the export market very, very strong.”
However, the EIA does not expect the boomlet in coal demand to last, at least for power generation in the U.S.
“The electric power sector is not moving away from natural gas as we expected previously because coal-fired power plants, which have historically acted as a substitute for natural gas generation, have not been receiving enough coal to meet demand. We expect coal production to increase by less than 2% during 2022, and we expect much of that gain to be exported. We expect that the share of generation provided by coal will return to 20% in 2022, down from 23% last year.”
While coal is on its way out in the long term — for better or worse — it still has a role to play in the here and now.
