By Taylor Kuykendall
July 13, 2021 - The security of longer-term supply contracts signed between U.S. utilities and coal producers is becoming increasingly rare in an industry struggling with declining demand.
Longer-term contracts offer coal companies the certainty of incoming revenue needed to make investments in future infrastructure. They can also help convince investors of future profitability. An S&P Global Market Intelligence analysis found a growing share of the monthly coal delivered to power plants is arriving with fewer than three years remaining on the contract term. Meanwhile, the percentage of coal provided with over three years remaining in the agreed period is trending downward over the last several years.
“In my opinion, it’s no surprise because the utilities don’t really know how much coal-fired power they’re going to need,” said John Hanou, president of Hanou Energy Consulting LLC. “I think they just don’t want to commit to any kind of term because it’s possible that the plant may shut down or get out-dispatched by other energy sources, namely, natural gas.”