US Share of Electricity Generation from Coal to Decline Further Despite Soaring Natural Gas Prices EIA Forecasts

The EIA in their June STEO expect the continued retirement of coal-fired generating capacity in the United States to see the share of electricity generation from coal to decline from 23% in 2021 to 21% in 2022 and to 20% in 2023. Despite surging natural gas prices constraints include limited rail capacity for fuel delivery, low coal stocks at power plants, reduced coal mining capacity, and rising generation from renewable sources. Coal prices have risen unabated with supply chain disruptions globally.

Underground Coal Murrey Energy

 

The EIA said U.S. coal production in the forecast increases by 23 million short tons (MMst) (3.9%) in 2022 to 601 MMst and then declines by 13 MMst (2.1%) to 588 MMst in 2023.

The forecast increase occurs despite the EIA expectation that coal use in the electric power sector will decline. They expect rising coal production will replenish electric power sector inventories and contribute to U.S. coal exports.

The two largest sources of electricity generation in the United States are coal and natural gas.

The Efficiency 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 last year.

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 effect 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..

Source:  EIA

From The TradersCommunity Research Desk