US Coal Generation Increased For The First Time Since 2014 Due To Soaring Natural Gas Prices

The EIA in their STEO expect 22% more U.S.Coal Fired Generation in 2021 over 2020. The increase is from soaring higher natural gas prices. While Coal prices have risen unabatted with supply chain disruptions globally there have risen less than gas in the US.

The EIA in their STEO expect 22% more U.S.Coal Fired Generation in 2021 over 2020. The increase is from soaring higher natural gas prices. While Coal prices have risen unabatted with supply chain disruptions globally there have risen less than gas in the US.

 Underground Coal Murrey Energy

The EIA said 2021 will yield the first year-over-year increase in coal generation in the United States since 2014. The two largest sources of electricity generation in the United States are coal and natural gas.

US power generation 2010 22

The efficency of natural gas over coal

Natural gas-fired power plants convert fuel to electricity more efficiently than coal-fired plants, natural gas-fired generation can have an economic advantage even if natural gas prices are slightly higher than coal prices the EIA noted in their report.

Between 2015 and 2020, the cost of natural gas delivered to electric generators remained relatively low and stable. This year natural gas prices have hit over fourteen high in the US and all time highs in Europe and Asia. The year-to-date delivered cost of natural gas to U.S. power plants has averaged $4.93 per million British thermal units (Btu), more than double last year’s price.

Electric power delivered fuel costs

Multiple factors came together to push natural gas and coal prices higher. The overall decline in U.S. electricity demand in 2020 from the Covid-19 lockdowns led to record-low natural gas prices. The known affect from this and the viscious ESG political movement which was blindly anti anything fossil fuel but significantly without a transition plan for conversion to alternatives sources left the world vulnerable.

 Coal share of USA power

The knock on affect was coal plants significantly reduced the percentage of time that they generated power. In 2020, the utilization rate (known as the capacity factor) of U.S. coal-fired generators averaged 40% according to the EIA. Before 2010, coal capacity factors routinely averaged 70% or more. This year’s higher natural gas prices have increased the average coal capacity factor to about 51%, which is almost the 2018 average.

U.S. electric power sector coal-fired generators

US power coal fired generators

Source: U.S. Energy Information Administration, Short-Term Energy Outlook; Preliminary Monthly Electric Generator Inventory

Coal Generation Increase Temporary

Although rising natural gas prices have resulted in more U.S. coal-fired generation than last year, this increase in coal generation will most likely not continue. The electric power sector has retired about 30% of its generating capacity at coal plants since 2010, and no new coal-fired capacity has come online in the United States since 2013. Furthermore coal stocks at U.S. power plants are relatively low, and production at operating coal mines has not been increasing as rapidly as the recent increase in coal demand.

For 2022, the EIA forecast that U.S. coal-fired generation will decline about 5% in response to continuing retirements of generating capacity at coal power plants and slightly lower natural gas prices.

The on effect has led to soaring global coal prices

This in turn has created a windfall for Australia and Australian commodity companies like Glencore, Rio Tinto and BHP as China and Europe suffers a masssive energy crisis from these policyy knock on affects.

In China Shanxi province has had to shut down because of power shortages

 Thermal Coal Futures 10 11 21

The powerful State Council on Friday said it will allow higher electricity prices in a bid to boost generation amid the rising costs. Floods closed 60 of the 682 coal mines in Shanxi province, which has produced 30% of China’s supply of the fuel this year according to Bloomberg.

A series of supply shocks from a lack of mine investments among other things are attributable to the coal price surge along with the strength in natural gas prices. Domestic coal supply disruption started from the anti-corruption campaign in Inner Mongolia last year, followed by a few rounds of heightened safety inspections and environmental checks. From there we have seen a record cold winter, a showdown with Australia who are the biggest coal exporter in the world and the CCP trying to implement emission standards.

Thermal coal, which is used mainly by utilities to produce electricity has seen prices triple to about $200 a metric tonne in Australia. Glencore has sizable operations in Australia and produces thermal coal and metallurgical coal, which is used to make steel.

ICE NewCastle Coal Oct ’21 (LQV21) 210.50s +2.80 (+1.35%) 09/29/21 [ICE/EU]

ICE Newcastle Coal 9 29 2021

 

Chinas Power Rationing 21 9

In china 12 provinces have identified coal supply shortage as the key reason behind for power rationing or rolling blackouts. In the three provinces in northeast China. Liaoning, Jilin and Heilongjiang, in particular, even residential power usage is affected, a rare occurrence for a country putting household energy supply in a prioritized category. For most provinces, industrial power rationing remains the key measure a report by IHS Markit said.

Thermal Coal Futures China 9 29 21

 

Source:  EIA

From The TradersCommunity Research Desk

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