Coal Pricing Update for Spring 2014

By Vernon Trollinger, March 18, 2014, News

chart-1At first glance, American coal seems to have had a bad year. Falling production from loss of investment, lack of interest in federal land leases, and low profitability — all point to coal sluggishly waning as an electric generation fuel stock. The reason: coal may be cheap, but it’s dirty.

Even still, of the more than billion short tons of thermal coal mined in the US, 81% was burned by U.S. power plants to generate electricity. Coal use for electricity in 2013 rose to 923 million short tons (MMst), a 3.9% increase over 2012. The biggest consumer of coal for electricity in 2012 was Texas (97.3 MMst), Pennsylvania ranked 5th (41.6 MMst). The reason: it may be dirty, but it’s cheaper than natural gas.

Supply and Demand

When natural gas prices began rebounding last year, generation companies resorted to burning their coal reserves first. This contributed to slumping coal prices. Peabody Energy Corporation, for example, produced 64.6 MMst during the 4th quarter of 2013 (1.3 MMst more than the same period in 2012), but it made $28 million less. US electric power coal stocks are now at 7-year lows.

The recent bitter winter, however, sunk its icy fangs into natural gas supplies and all but sucked the life out. Consequently, the natural gas market is more volatile, and every visit from the chilly Polar Vortex spikes prices and threatens to squeeze supply. Current projections for coal in 2014 show consumption increasing to 966 MMst due to higher natural gas prices and lower coal stocks.

This rebound won’t last long. Decommissioning of older coal power plants in compliance with the Mercury and Air Toxics Standards (MATS) will seriously decrease power plant coal consumption. EIA reports the planned retiring of “almost 27 gigawatts (GW) of capacity from 175 coal-fired generators between 2012 and 2016.”

Natural gas supplies are very likely to increase through the rest of this year. figure_3es-lgThat amount should be much more than “steadily,” but one is loathe to use inflating terms like “drastically” or “dramatically” because it depends on the forbearance of the producers. Still, there are a little over 350 dry shale gas rigs producing. When natural gas production glutted the market in 2009-2010, there was a backlog of natural gas wells in the Marcellus Shale. These had been drilled, but not completed to produce natural gas. EIA cited a Barclays report on February 28 estimating more than 1,300 wells in Pennsylvania alone were backlogged.


Coal is expected to be around for decades. The EIA’s Annual Energy Outlook 2014 predicts “Coal consumption, mostly for electric power generation, falls off in 2016, the first year of the MATS. After 2016, coal-fired electricity generation increases slowly over the next 10 years as the remaining coal-fired capacity is used more intensively, but little capacity is added.” Coal prices, however, can expect “increases by 1.4% per year” primarily due to higher production costs and increased exports to developing markets overseas. In the near term, coal spot prices for the March contract and onward appear flat. The cheapest, Powder River Basin, had a weekly average of $12.50/short ton. The Powder River Basin in Wyoming yields 40 percent of the nation’s coal and makes 18 percent of the nation’s electricity generation.

Your electric bill

Cheap coal will continue to come up to bat during this summer’s cooling season, especially in those regions facing high cooling demand. While coal might keep consumer energy prices affordable, expect that higher-priced natural gas will get harnessed to meet peak demand and become the price of your electricity. Just how high that price is depends on how rapidly natural gas production ramps up.

What does this mean for you? If you are currently signed onto a variable-rate plan, that “depends” in the last paragraph translates into a lot of uncertainty for your home’s summer energy bills. I recommend that you seriously consider shopping for a fixed-rate plan. If you currently have a fixed-rate plan but are looking for a new low rate, it might be best to keep tabs on natural gas production to see what effect it will have on energy prices this fall.

Chart graphics courtesy of the US Energy Information Agency

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A native of Wyomissing Hills, PA, Vernon Trollinger studied writing and film at the University of Iowa, later earning his MA in writing there as well. Following a decade of digging in CRM archaeology, he now writes about green energy technology, home energy efficiency, DIY projects, the natural gas industry, and the electrical grid.

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