More tough times ahead for coal

Coal continues to be a difficult business.  Environmental pressures, increased competition from natural gas and renewables, and market conditions mean it’s harder than ever for coal operators to stay in business.

It’s not going to get any easier.

Moody’s Investors Service earlier this month predicted that the demand for thermal coal from U.S. utilities will “erode significantly” in the 2020-2030 decade, “further driving the U.S. coal industry’s ongoing contraction and increasing its reliance on exports over the long-term.”

America’s remarkable economic growth of the 20th century was fueled by coal.  The United States has more than one-fourth of the total known coal reserves in the world.  For decades, coal has been the cheap, reliable energy source that kept electricity prices low.

But coal’s percentage as an energy source is declining rapidly. Natural gas fueled 35 percent of electricity generation in this country in 2018, while coal fell to 27 percent.  Renewables now supply 20 percent.

Moody’s predicts that by the end of the next decade, coal’s share of U.S. power generation could fall to as little as 11 percent, based on scheduled and likely retirements (of coal-fired power plants).”

Reported Moody’s, “This drop would represent a substantial reduction from today’s mid-20 percent contribution to power generation and the continuation of an ongoing decline in thermal coal demand.”

That means for the coal industry to remain viable, companies will have to rely even more on exports, and that’s risky.  According to the U.S. Energy Information Administration, coal exports reached a five-year high in 2018, but since then the market has weakened.

The international market will continue to help prop up domestic coal production, but there’s also more competition from markets like Australia, Russia and Indonesia. In addition, the global market is subject to economic ups and downs, and now the trend is downward.

“Demand has waned in key markets,” the Wall Street Journal reported back in April.  “In Asia, Japanese buyers have locked in supplies with long-term contracts, Chinese utilities are buying more local coal and generating more power from gas and water, and South Korea has raised taxes on coal imports.”

Still, Moody’s projects that within the next few years, more than one-fourth of all thermal and metallurgical coal produced in the U.S. will be exported.

Coal’s run as a significant energy source is far from over.  Global demand for cheap energy will provide critical, but volatile markets.  However, according to Moody’s, the outlook for domestic demand will continue to erode production.

The U.S. Energy Information Administration is less pessimistic than Moody’s, but not by much. “EIA projects that trends in coal production in the United States could range from flat to continuing declines through 2040.”

Coal has been going through a difficult period for over a decade, and during that time many companies have gone out of business, suppliers have closed-up shop and thousands of miners have lost their jobs.

The companies that have made it through the tough times have taken over the remaining markets for thermal and metallurgical coal. Moody’s “maintains a stable outlook for the industry” for now, primarily because of the robust demand for met coal, but economic and environmental headwinds will persist.







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