July 3, 2017 - Over lunch at a recent energy conference, a fellow attendee asked where I worked and what I did, and I explained that I lead coverage of the US thermal coal market for S&P Global Platts. The gentleman, who worked for a group that finances renewable energy projects, had several questions about coal, and each answer seemed to only increase his incredulity.

“So, let me understand,” said the gentleman finally. “You are bullish on coal?”

No, I’m not. In the US, thermal coal is facing a long-term decline in demand, driven by cheap natural gas, an increase in renewable generation, and state and local authorities intent on reducing carbon emissions.

But what gets lost in a blur of doom-filled headlines is the fact that a significant amount of electricity consumed in the US is still fueled by coal.

In 2016, the US power sector consumed 677 million short tons of coal, generating 1,240 TWh of electricity, or 30.4% of the nation’s electricity, according to Energy Information Administration data.

Power sector coal consumption was down 8.3% from the 738 million st burned in 2015, and down 20.5% from the 852 million st burned in 2014.

But those drops were largely the result of historically low natural gas prices. In 2014, the NYMEX Henry Hub natural gas futures price averaged $4.27/MMBtu, but dropped to $2.63/MMBtu in 2015 and $2.55/MMBtu last year.

So far this year, the gas contract is averaging $3.10/MMBtu, which helps make coal competitive. Partly due to higher natural gas prices, the EIA expects power sector coal consumption to total 677 million st in 2017, and 687 million st in 2018.

But even if gas dropped to $1/MMBtu, utilities would continue to burn coal. There just isn’t enough natural gas to replace it.

In 2016, the US power sector consumed 9,960 Bcf of natural gas, generating 1,381 TWh, or 33.9% of all US electricity. Keeping all other gas demand (residential, commercial, industrial) constant, US natural gas production would have to increase from roughly 72 Bcf/d to nearly 100 Bcf/d, an increase of nearly 40%.

Even if these numbers are off by 20%, it would require discovery of another basin equal in size to the giant Marcellus/Utica shale plays.

Coal’s resilience can also been seen in its pricing. The price in the over-the-counter market for 8,800 Btu/lb coal from Wyoming’s Powder River Basin hit a multi-year high of $12.55/st in February 2017, while the price of Central Appalachian rail (CSX) OTC coal also hit a multi-year high of $64.50/st in November 2016.

Producers will always say pricing could be stronger, but prices hitting such highs hardly reflects a market in wholesale retreat.

A lot of faith is placed in renewable energy, and rightfully so: no carbon emissions and zero fuel costs. These traits have helped endear the technology to segments of the population, and solar has grown rapidly. From 2012 to 2016, the compounded annual growth rate for utility-scale solar is 55%.

But consider that in 2016, utility-scale solar installations – think farms of solar panels – generated 36.1 TWh of electricity, or 0.9% of the nation’s electricity.

Distributed solar generation – think residential rooftops – totaled 19.5 TWh in 2016, or 0.5%.

In April, utility-scale solar generated 4.8 TWh, which was the highest monthly output since the EIA began gathering such data in 2013. The April total was up 66.2% from the year-ago month, and year-to-date utility-scale solar generation is up 48.6% compared with the same period last year.

But it still only represented 1.1% of US power generation through the first four months of the year.

It’s a similar story for wind, which grew 15.5% annually between 2012 and 2016, and generated a record 294.1 TWh, or 7.2% of the nation’s electricity, in 2016. Through the first four months of 2017, wind’s share of generation has increased further to 7.5%.

According to the American Wind Energy Association, total installed wind capacity at the end of 2016 was 82.2 GW, comprising roughly 53,000 utility-scale windmills. Keeping all else equal, the US would need to build another 170,000 windmills to replace the electricity generated from coal.

Without getting into the debate about its intermittency, solar and wind generation will continue to grow, and will likely push out coal in the next few decades, perhaps sooner if storage technology is able to scale up. But coal is poised to continue to fuel a significant portion of US power generation for years to come, which, for the time being, hardly seems bearish.