There have been recent references in the media to a War on Coal. What has happened to coal production and consumption in our recent past? Some charts and tables will help us to figure it out. First, from Index Mundi.
Coal production in 2011 was 1,094.3 million short tons. So, production and consumption, after a recession related drop in 2009, are back in line with where they were for the last 10 years. If there is a War on Coal, it is not very effective. But, maybe some people think production should be increasing faster. They blame new regulations. Could be, or maybe it is the War on Gas.
Natural gas, after hitting an all time high of $10.79 per 1000 cubic feet in July, 2008, hit a low of $1.89 in April 2012. This price, not adjusted for inflation, was last seen in the 80s and 90s. This largely due to increased supply with an increase of about 12% since 2008. We are now producing more natural gas than at any time in our history.As the Analysis Group notes, this drop in price is a major reason for the closure of coal fired power plants.
Power companies in the U.S. have announced a growing number of retirements of coal‐ fired power plants over the past 12‐14 months. While not unexpected, recent announcements have sparked debate over the causes of these business decisions, with some pointing to regulations issued by the U.S. Environmental Protection Agency (“EPA”) as the primary reason. Putting aside the political context of the current debate, a closer examination of the facts reveals that the recent retirement announcements are part of a longer‐term trend that has been affecting both existing coal plants and many proposals to build new ones. The sharp decline in natural gas prices, the rising cost of coal, and reduced demand for electricity are all contributing factors in the decisions to retire some of the country’s oldest coal‐fired generating units. These trends started well before EPA issued its new air pollution rules.
In general, the owner of a coal‐fired power plant (or of any generating facility, for that matter) may decide to retire the plant when the revenues produced by selling power and capacity are no longer covering the cost of its operations. While sometimes these decisions are complex, they essentially can resemble the basic choices that households face, for example, when they have to decide whether making one more repair on an old car is worth it: often, making the repair is more expensive and risky than the decision to trade in that car and buy a new one with better mileage and other features that the old car lacks.
These plant‐retirement decisions thus turn on these economic fundamentals: can the plant produce power at electricity prices that allow the owner to cover its operating and investment costs, including the ability to earn a reasonable return from the production and sale of electricity? It is these other considerations, beyond EPA’s clean air rules, that have been influencing recent coal plant retirement decisions.
This has been accompanied by rising coal prices.
At the same time, coal prices have remained relatively high: According
to the U.S. Energy InformationAdministration (“EIA”), “Delivered coal prices to the electric power sector have increased steadily over the last
10 years and this trend continued in 2011, with an average delivered coal
price of $2.40 per MMBtu (5.8 percent increase from 2010).”4 Coal futures prices have been rising too (as shown at right).
Coal prices have pushed upward in part because exports have offset a drop in domestic coal consumption. The Appalachian region, in particular, saw a large increase in exports last year driven by demand for metallurgical coal used in steelmaking. U.S coal exports increased 31 percent in 2011 (see chart below), the highest level since 1991.5 The surge in exports was driven in part by reduced production in other parts of the world. Flooding last year disrupted coal mining in Australia, the worldʹs largest coal exporter, contributing to increased U.S. coal trade with India, Japan, and South Korea. Coal exports are expected to remain
strong in response to global energy demand. Arch Coal, for example, made several investments in 2011 to bolster its U.S. export capabilities.6
The Analysis Group goes on to note that lower gas prices and higher coal prices mean that the older, less efficient coal burning plants are sometimes taken off line in favor of gas burning plants when prices favor the gas plants.
Oil production? Bottomed in 2008, and is now back to 2003 levels. So, gas production at record levels. Coal exports at record recent highs, with coal prices up and total coal production consistent with levels through the 2000s. Oil production increasing steadily since its nadir in 2008. Not much of a war.