Coal’s COVID Hit Accelerates Decline

Although its long-term decline might be interrupted by temporary spikes, thermal coal in the U.S. appears to be on the way out. On September 29, a federal judge upheld the Federal Trade Commission’s blocking of an attempt by the nation’s two largest coal producers, Arch and Peabody, to merge. Together the two controlled about two-thirds of the coal reserves in Wyoming’s Powder River Basin.

Since then, Arch has been trying to sell its thermal coal assets to concentrate on the more lucrative metallurgical, or “met” coal, used to make steel, which still has a future. It even dropped the word “coal” from its name. A recent news story reports that activist investors at another coal producer, Contura, are pushing to get it out of the thermal coal business and to concentrate on met coal.

Hundreds of coal-fired plants have closed since the beginning of the century, although most were at the end of their design lives. A study in January claimed that the closures have saved thousands of lives and millions of bushels of crops.

The Energy Information Administration (EIA) expects total U.S. coal production in 2020 to be 525 million short tons, compared with 705 million short tons in 2019, a 26 percent decrease. The COVID-19 outbreak and efforts to mitigate it, along with reduced demand from the U.S. electric power sector amid low natural gas prices, have contributed to mine idling and mine closures. The EIA expects production to rise to 625 million short tons in 2021, up 19 percent from 2020. These forecasts factor in higher natural gas prices compared with 2020.

The share of U.S. electric power generation from natural gas-fired power plants is forecast to increase from 37 percent in 2019 to 39 percent in 2020. In 2021, the forecast natural gas share declines to 34 percent in response to higher natural gas prices. Coal’s forecast share of electricity generation falls from 24 percent in 2019 to 20 percent in 2020 and then returns to 24 percent in 2021. This is possible because some plants can switch from coal to gas and back according to price and availability.

The EIA is also predicting that electricity from renewable energy sources (wind and solar) will rise from 17 percent in 2019 to 20 percent in 2020 and to 22 percent in 2021. This means renewables now have roughly the same share of power generation as coal (roughly 20 percent) and nuclear (20 percent), which is declining 3 percent due to planned retirements of nuclear generating capacity.

Thermal coal may not disappear overnight. The EIA forecasts that it will take up to three decades for coal to drop to 13 percent of power generation. The U.S. steel industry, now centering along the Tennessee-Tombigbee Waterway, will continue to generate some barged met coal cargoes, along with barged steel. Met coal can continue as a profitable cargo on the waterways as long as countries overseas continue to make steel. But the long-term downward coal trend is directly relevant to the re-balancing of the U.S. hopper barge fleet.