Neither the dead nor the living read their obituaries.
And it looks like the U.S. coal industry isn’t reading its obituary — because it isn’t dead. As recent months have made clear, reports of its demise have been greatly exaggerated.
From the second quarter of 2016 to the same period this year, U.S. coal production rose almost 16 percent. And the number of new mines in Central Appalachia that produce metallurgical coal used in steelmaking rose from 155 to 212 in the year ending in June, according to Argus Coal.
Offshore demand for U.S. metallurgical coal has soared by 60 percent this year. In fact, the U.S. is exporting more of its world-leading supply of coal to every major region, including the EU, where shipments are up by more than a third over 2016.
Nuclear plants are struggling in the UK and in France, creating surprisingly strong demand for U.S. coal. And steam coal exports to Asia, where power grids are still growing, have doubled.
Here at home, coal is holding its own. The U.S. Energy Information Agency’s (EIA) recent short-term forecast projects coal to narrowly edge out natural gas for power generation this year, as it has most every year before 2016.
That year was an anomaly, when gas grabbed 34 percent of the market, pushing down coal’s share to 30 percent and fueling not only power plants but predictions of the coming coal collapse.
But the gas inventory glut that dampened gas prices last year is waning, leading EIA to project coal’s continuing recovery next year, narrowly winning the market share rivalry with gas in 2018. With each energy source claiming about a third of the market for electricity generation, nuclear power growth stagnant, and wind and solar power at under 10 percent of the market, America’s power grid still relies heavily on fossil fuel generation.
We can attribute part of the nascent coal revival to the unshackling of myriad regulations that drove coal plants into retirement and forced down production.
But Darwinian logic actually explains much of the revival. Producers that survived both the brutal stress test from shale gas and federal regulations have squeezed costs out of their operations.
This positioned the U.S. to become more than a swing supplier for offshore markets. EIA analyst Elias Johnson recently told Reuters that it’s possible “the U.S. will become more of a primary player in the global coal trade market.”
If exports are the key to coal’s longer-term revival, it may not be coal exports but the growing export of natural gas. That may lift energy prices enough to sustain coal’s rally and help consumers.
Hungry for better prices abroad, both liquefied natural gas (LNG) and piped gas to Mexico and Canada could affect the energy game — if not change it completely.
Even though LNG costs, including shipping and liquefaction, double the price of U.S. gas in Europe, the low cost of shale production makes our basins competitive with Russia’s. The cheap gas that tormented U.S. coal miners may soon be Gazprom’s headache instead.
A 2015 EIA report concluded that in every scenario “greater LNG exports raise domestic prices and lower prices internationally.” Already, analysts expect U.S. natural gas prices to climb steadily, and EIA sees $3.00 prices for a million BTUs rising to $3.29 next year.
That could be just the beginning.
While LNG potential has been restricted by infrastructure, it may not be for long. The sole American LNG terminal, Sabine Pass, may be joined by four others on the Gulf and Atlantic coasts by 2021 that already have permit approvals.
Last week Continental Resources’ CEO Harold Hamm told The Financial Times to expect gas exports to triple over the longer term, eventually taking 40 percent of current domestic production.
The bottom line, asks energy expert Robert Walton of Utility Dive, is “whether the shipping of natural gas to global markets will impact U.S. consumers?”
It’s a good question, with no certain answer.
What is certain is that keeping more coal plants in operation will reduce the risk to households and businesses.
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