Coal Pricing Update for Summer 2013
“Coal is King,” as the saying goes, and it’s especially true when it comes to electricity generation, because it’s been the cheapest source for so long. But old King Coal’s crown is becoming more and more tenuous as other technologies revolutionize the energy sector. The chief competing fuel is natural gas now made abundant (and less expensive) by hydraulic fracturing or “fracking”.
Despite the 2012 plans of coal plant operators to retire 175 coal-fired generators, or 8.5 percent of the total coal-fired capacity in the United States, the obvious fact from the summer heat this summer remains. Coal isn’t going away anytime soon. The US Energy Information Agency (EIA) cites 2011 statistics showing that coal still fuels “about 42% of the 4 trillion kilowatt-hours of electricity generated in the United States.” For Bounce Energy customers, coal use breaks down roughly this way:
Pennsylvania generates 40% of its electricity from coal, with natural gas and nuclear power making 20% each.
Texas, meanwhile, has reduced its reliance on coal to 20%. Over 60% of its generation capacity is from natural gas. Wind power and other renewable energy sources clock-in at 9.5%. Texas, however, is one of the biggest interstate importers of coal.
New York relies on coal for only about 7.1 % of its electricity, while natural gas fuels 44.2%, nuclear fuels 13.4%, and hydroelectric 11%.
The highest use of coal for generating electricity is the East North Central area (Illinois, Indiana, Michigan, Ohio, and Wisconsin), which on average uses coal to power 50%-86% of its electric generation. (Check out this graph.)
Coal is not just fossilized carbon that burns hot. Broadly, it comes in three family types that each yield different amounts of heat and impurities (pollutants such as sulfur and mercury, among others). Hard coal, known as anthracite, is the rarest occurring and has the least sulfur. Bituminous is a “soft coal” and is the most common. Lignite is sometimes called “brown coal” and burns with the most impurities.
Coal also falls broadly into two classes. Thermal coal (“steam coal”) is used for fueling generators. Coking coal or “metallurgical coal”, is low-ash, low-sulfur bituminous coal that is converted into coke to make steel. As a consequence, the coal supply reverberates through many industries, such as the automobile and appliance industries both in the US and abroad. When demand for coal falls in the US and rises in Pacific rim countries, US producers are all too happy to send coal overseas. When other countries compete more successfully in filling that demand, domestic US coal prices fall and production scales back.
This is more or less what happened in 2012 when natural gas prices fell and US suppliers turned their hopes overseas. For example, in February 2012 alone, US coal exports to China (408,700 tons) were handily overpowered by Australia ( 2.58 million tons), Canada (1.21 million tons), and Russia (527,300 tons). The EIA states, “Coal delivered to European and Asian markets accounted for 52.8% and 28.0%, respectively, of all U.S. coal exports.” To break it down even finer, in the first quarter of 2012 the US exported 610,761 short tons of steam coal and 1,390,274 short tons of metallurgical coal to China.
The real overseas coal demand was for making steel rather than for making electricity.
The impact in the US forced the the world’s third-largest coal supply to reorganize its operations. Alpha Natural Resources’s decision to cut production by 16 million tons, close high-cost eastern mines, and cut 1,200 jobs in order to refocus their mining operations on metallurgical coal production.
Demand and Price
In April 2012, power sector demand for coal sank to a ten-year low (fueling only 32% of US electricity). Briefly there was price parity with natural gas whose price had collapsed to around $2/MMBtu. Generators eagerly shifted demand load to their natural gas generation plants. “During the first half of 2012, lower consumption of coal at electric power plants led to high coal stocks and a decrease in spot prices for eastern coal.”
When natural gas prices increased during the winter of 2012-2013, generators switched back to burning coal, raising the national usage back to 40%. However, the coal they have been burning has been mostly their own stockpiled inventory. Summer weather has varied regionally and brought weekly fluctuations to natural gas prices. Coal prices for the first 6 months of 2013, despite lowered production (4% vs 2012) and weak international markets, have been mostly unchanged. As the graphic shows, both Powder River Basin coal (the cheapest) and Central Appalachian coal have been flat, finishing at the end of this past June at $0.45/MMBtu and $2.89/MMBtu, respectively. By comparison, natural gas ended at $3.93/MMBtu.
Forecast and Your Electric Bill
Currently, coal prices continue flat. In contrast, coal production, measured in million short tons (or MMST) has nosed higher this past July (88.909 MMST) than 2011 (85.498 MMST) and 2012 (86.344 MMST). Stockpiles are expected to fall to 161 MMST by December, 2013. Currently, EIA expects coal prices on average to continue flat with a possible rise of three cents/MMBtu.
Since 92% of US coal goes to generate electricity, that price has a direct effect on your electric bill. Yet, with plans to retire 175 coal-fired generators (many over 50 years old), there will be additional construction costs for new efficient coal plants to bring them in line with environmental regulations, adding more to their “levelized costs” by 2020.
In the short term, electricity prices on average have risen 3.7% over the last year, with the current US average residential retail price being 12.54¢/kWh. The forecast peak for next year is 12.82¢, depending on demand and fuel price.
The best way to save money is to sign up for a long-term fixed-rate contract with your retail electricity provider to lock in the current low rate. But keep on your toes. With natural gas vying to be the fuel of choice, regional demands and weather add more price volatility than in the past when coal was king.