By Avi Salzman

January 15, 2021 - Coal has been steadily dropping as a source of U.S. electricity generation over the past two decades. After peaking in 1998, the amount of coal produced in the country had fallen by 40% by 2019, and it dropped even more in 2020.

But the next two years could see a reversal. The U.S. government now expects coal to rise from 20% of electricity consumption in 2020 to 22% in 2021 and 24% in 2022.

Coal could gain share despite losing its greatest political champion—President Trump.

Photo: George Frey, Getty Images

What’s remarkable is that coal could gain share despite losing its greatest political champion—President Donald Trump. How could it suddenly be experiencing a mini-renaissance when it’s about to face much more stringent regulations?

The rebound has more to do with the price of another commodity than it does with any political shift. Coal’s largest current competitor is natural gas, which has been taking market share from coal in the past few years and is now the No. 1 source of electricity in the country.

Natural gas use has risen because it was abundant and cheap. But natural gas is now in high demand around the world—particularly in Asia—even as the U.S. produces less of it because of reduced drilling during the pandemic. Prices of natural gas have more than doubled from their lows last year, and the U.S. Energy Information Administration expects the price of natural gas for electricity generation to rise 41% this year.

As natural gas prices continue to climb, power plants may start to shift electricity generation back to coal to save money. (Most U.S. coal is used for electricity generation, though some is used to make metals.)

The EIA estimates that total U.S. coal production decreased by 24% in 2020, but that it will increase by 12% in 2021 and rise again in 2022. Renewable energy will account for a much larger part of new electricity generation this year, but coal’s rebound could be another story in the coming months.

Already, several coal companies have seen their stocks more than double since November. Peabody Energy (ticker: BTU), for instance, has more than tripled in that time to close at $3.99 on Wednesday after falling below $1 in November. Still, the stocks are down more than 70% from their 2019 highs. And Wall Street doesn’t seem convinced of a rebound. None of the six analysts covering Peabody has a Buy on it, according to FactSet.

The long-term fate of coal is likely to be rough, no matter what happens to natural-gas prices. Renewables are already cheaper than coal in most cases, and will only become more ubiquitous over the next decade.