By Fred Pace
The EIA report projects coal will fuel 31.3 percent of electricity in the U.S. in 2017, compared with 31.1 percent for natural gas. In 2016, natural gas surpassed coal as the nation's top fuel for the first time, totaling 33.8 percent of generation compared with 30.4 percent for coal. Experts take differing views on the long-term significance of the recent uptick for coal, but the industry seems glad to have some good news.
"This report is a very positive sign for coal and that it is moving in the right direction," said Bill Raney, president of the West Virginia Coal Association. "It shows that coal is still a very viable and most dependable energy source in the country."
The agency has projected natural gas to be the top fuel in 2017 in most of its reports so far this year, including June's edition, but increasing gas prices as well as higher hydro generation have pushed it below coal in the latest forecast.
Coal Supply and Production
The EIA estimates that coal production declined by 169 million short tons, or 19 percent, in 2016 to 728 million, the lowest level of coal production since 1978.
In 2017, growth in coal-fired electricity generation and exports is expected to lead to an increase of 57 million short tons, or 8 percent, in total U.S. coal production.
"Production of coal is up in the first six months of 2017 in West Virginia by approximately 18 to 19 percent," Raney said. "After eight years of an administration that was attacking coal, now we are seeing the beginning of what can happen when there is support for coal on the federal level. We need to continue this positive momentum."
Increases in production from the Appalachian region and the Interior region are expected to be 16 million and 15 million short tons, respectively, according to the EIA report. Production in the Western region is forecast to increase by 26 million.
In 2018, total coal production is expected to remain relatively unchanged, with declines in Appalachian region production offset by increases in Interior region and Western region production, the report showed.
"Coal production has been increasing recently because of the huge drop due to the Great Recession of 2008 together with employment," said Dr. Tony Szwilski, a professor and director at Marshall University's College of Engineering. "Coal production in Appalachian states was about 391 million short tons in 2008 compared to 222 million in 2015, a drop of 23 percent."
According to the EIA report, electric power sector coal stockpiles were 166 million tons in April 2017, the last actual data point, up 1 percent from the previous month, according to the report. This increase in total coal stockpiles is normal during the spring when the power sector builds coal stockpiles for use during the summer months when demand for electricity is greater, the report stated.
Electric power sector coal consumption is forecast to increase by 9 million short tons (1 percent) in 2017, mostly because of rising natural gas prices.
"I think the bigger story is the fall of natural gas and growth with renewable energy sources," said Richard Bajura, director of the National Resource Center for Coal and Energy at West Virginia University. "It is good to see that coal is holding steady while it faces stiff competition with cheaper natural gas and renewables.
"I expect to continue to see increases in natural gas prices, but coal will continue to face increased competition with cheaper gas prices and cheaper renewable prices," Bajura said. "There is really no data of big distinction with this short-term outlook report."
"There is no long-term forecast to be made based on this data," Bajura said. "This is a very complex market, and I believe cheaper natural gas and renewables will continue to make gains in the future, while coal will continue to hold steady."
The EIA reported coal exports for the first quarter of 2017 were 58 percent higher than in the same quarter last year, with steam coal exports increasing by 6 million short tons. The trend continued in April, with exports 58 percent higher than in April 2016.
"The coal industry is still trying to get its feet under it after eight years of a war on coal," Raney said. "We still have a lot of work to do, but this forecast shows positive reports and that's great news for everyone in the coal industry."
EIA expects growth in coal exports to slow in the coming months, with exports for all of 2017 forecast at 72 million short tons, or 12 million (19 percent) above the 2016 level. Coal exports are expected to be 63 million short tons in 2018.
Atlantic and Gulf Coast electric power generators are forecast to generally maintain their current levels of coal imports, which are primarily from Latin America. Total U.S. imports are estimated to have been 10 million short tons in 2016 and are forecast to remain between 9 million and 10 million in 2017 and 2018, according to the EIA report.
EIA estimates the delivered coal price averaged $2.11 per million British thermal units (MMBtu) in 2016, which is 5 percent lower than the 2015 price.
Coal prices are forecast to increase in 2017 and in 2018 to $2.15/MMBtu and $2.21/MMBtu, respectively, the report showed. Henry Hub spot prices are projected to average $3.22/MMBtu in 2017 and $3.52/MMBtu in 2018. They averaged $2.60/MMBtu in 2016, it reported.
Delivered utility coal prices are projected to average $2.15/MMBtu in 2017 and $2.21/MMBtu in 2018, up from $2.12/MMBtu in 2016.
Coal is not going away and will always be part of the energy mix for at least 20 to 30 years, according to Szwilski.
Power sector generation from coal in 2008 was 49.9 percent, in 2016 it was 31.4 percent, and a peak generation was 56.8 percent in 1985, he said.
"There are basically two coal markets: power generation and coking coal for steel production," he explained. "Both markets have dropped significantly since 2008 in line with the overall domestic and world economy. Coking coal price is about double that of thermal coal, so as steel production rises, coking coal will rise, especially exports, which holds significant promise."
Szwilski says thermal coal production has been hit significantly by the boom and future promise of an expected secure supply of lower price shale gas.
"The coal consumption market is being diminished by power plants replacing the coal fuel base with shale gas while many coal power plants have been decommissioned," he said.
"The cost of extracting coal from the ground will also steadily increase. Big picture ... world coal production is projected to peak in about 2035."
Although the positive data for the coal industry from the EIA appears to be short term, coal officials still welcome the good news.
"All of this news is very encouraging for the coal industry," Raney said. "Some may think these are just small movements in the right direction, but at least we are moving in a positive direction for the first time in eight years."