BackCoal Prices Tumble While Use of Wind Power, Solar Energy Leaps Ahead
Warm winter weather allowed coal to pile up at power plants, alleviating shortages
PremiumCoal prices have come crashing down from last year’s records.
Central Appalachian coal has been trading at $88.80 a short ton, down 57% from the record $205.55 at the start of the year.
Cash prices for thermal coal mined from northern Appalachia and the Illinois Basin—two places where a lot of exported coal originates—have fallen more than half since September, when Europe was stocking up for winter. Futures for coal that is shipped around the Pacific from an Australian export facility have made a similar plunge.
Coal markets are highly influenced by those for natural gas, which is also burned to generate electricity. As with coal, natural-gas inventories that looked alarmingly low last summer recovered thanks to unusually warm winter weather that obviated a lot of demand for heating.
Natural-gas futures for April delivery ended Wednesday at $1.991 per million British thermal unit, the lowest closing price since the 2020 lockdown and 64% less than a year ago.
Even after the decline in coal prices, varieties produced in the eastern U.S. have lately cost between $3.10 to $3.55 per million BTUs, according to the Energy Information Administration. That suggests that coal prices might have to fall further to regain competitiveness with natural gas.
Coal also faces increased competition from renewables, including wind, solar, hydropower and biomass, which last year accounted for more U.S. power generation than coal for the first time ever, federal record-keepers say.
Coal remains expensive relative to prepandemic prices, but its rapid deflation shows that power producers around the world are confident enough in their supplies to stop bidding up cargoes.
“We went from undersupplied to oversupplied very quickly," said Andy Blumenfeld, data analytics director at McCloskey by OPIS, a pricing service that is part of Wall Street Journal publisher Dow Jones & Co.
Prices started surging in 2021, when power producers fired up coal-burning generators to keep air conditioners running during some of the hottest temperatures on record. Stockpiles at U.S. power plants shrank to their lowest level since the Nixon administration.
A ban on Russian exports following the invasion of Ukraine further crimped supplies while the highest natural-gas prices in years and the prospect of shortages pushed up what power generators were willing to pay for coal.
By the summer of 2022—another scorcher—power producers on both sides of the Atlantic were competing for a limited supply of unsold coal. North American power generators’ stockpiles dwindled to as little as 58 days’ worth of coal, nearly a month less than the five-year average, according to energy consulting firm Wood Mackenzie.
Congestion at ports and along rail lines ensnared cargoes, prompting grid operators and utilities to take unusual steps to curtail coal use before the weather turned cold. In Colorado, Xcel Energy Inc.’s state subsidiary dialed back how much coal it burned in favor of natural gas, even as the competing fuel’s price spiked to shale-era highs.
“Given the fact that we were seeing delays and shortages in the delivery of coal, we made the prudent call that we would use less coal so that we could conserve that in advance of the winter heating season," said Robert Kenney, president of Xcel Energy’s Colorado arm.
Warm winter weather left a lot of coal unburned, though. Between December and January U.S. inventories grew by 4.6% at a time of year when they typically decline, according to EIA data.
As they raced to stock up, utilities ordered all the coal they could, much of which is scheduled to be delivered this year and could create a glut, analysts say.
For decades coal was the primary fuel burned to generate electricity in the U.S. Since 2010, though, U.S. coal-fired generating capacity has dropped more than 36% amid concerns about emissions and the abundance of gas unleashed by the shale-drilling boom, according to FactSet. Power plant owners are expected to retire another 4.5% of coal-fired capacity this year, according to the EIA.
As coal-burning capacity has dwindled, so has financing for speculative production. Miners now sell most of their output in advance, with not much more to sell if demand is greater than expected.
Big mining companies have told investors that they are mostly sold out for 2023. It is possible that power producers have overbought and will try to resell their coal in export markets or renegotiate deals with their suppliers, which could add downward pressure to prices, McCloskey’s Mr. Blumenfeld said.
Already, he said, some utilities are burning coal to make space for incoming deliveries even though it has become uneconomical.
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