NEW YORK – U.S. coal companies worried that the Obama administration’s proposed clean-air rules will put them out of business face a bigger threat: natural gas.
Shale formations in the eastern United States are yielding record amounts of gas, pushing prices of the fuel in the region below coal, which had been 61 percent less expensive on average since 2001. As power generators use more gas, coal is piling up at the fastest rate since 2009, according to BB&T Capital Markets.
Coal producers are already reeling from regulations taking effect this year that will shut enough plants to power the homes in a city almost five times the size of New York. Gas drillers have cut costs by as much as half, allowing them to boost output to record highs even as prices dropped. As a result, coal demand may fall next year to the lowest level since 1987, Bloomberg New Energy Finance says.
“Natural gas is really the critical driver for the demise of the coal industry,” said Hans Daniels, executive vice president at Doyle Trading Consultants, a Grand Junction, Colorado-based coal analytics company. “Cheap, abundant natural gas is crushing coal and there is no letup.”
U.S. utilities are on track to end 2015 with 171 million tons of coal in reserve, the highest since 2012, Mark Levin, an analyst at BB&T Capital in Richmond, Virginia, forecasts.
“It’s going to be ugly,” says Daniels. “When stocks build up like that, it just defers the pain for the coal companies.”
Nationwide, coal accounted for 36 percent of electricity generation through March, down from 42 percent a year earlier. By comparison, gas’s share rose to 29 percent from 24 percent, according to the Energy Information Administration.
There is an environmental benefit to the shift. Gas emits half as much pollution-causing carbon dioxide as coal. President Barack Obama has proposed a series of regulations that aim to reduce emissions from power plants by 30 percent from 2005 levels. Coal trails only crude oil as the world largest energy source.
Utilities will retire 23 gigawatts of coal-fired plants this year to comply with the Environmental Protection Agency’s Mercury and Air Toxics Standard, BNEF estimates. The EPA is scheduled to complete its Clean Power Plan this summer, a measure that the Obama administration says will reduce coal’s share of power to 30 percent by 2030 from 50 percent in 2007.
The swelling stockpiles are crushing coal prices. Benchmark Appalachian coal on the New York Mercantile Exchange cost $44.22 a ton on June 9, the lowest since November 2009. CME Group Inc. moved last month to delist all contracts after 2016 because of declining trading volume.
Natural gas production in the U.S. will climb 5.7 percent this year to a record 78.96 billion cubic feet a day, the EIA forecast. Futures on the New York Mercantile Exchange are down 42 percent from a year ago.
Contracts on Nymex for gas next year are near $3 per million British thermal units, potentially reducing coal consumption to 724.8 million tons, the least since 1987, according to a report from BNEF analysts, including Meredith Annex.
Back in 2012, when a plunge in gas prices last battered coal to a similar degree, exports soared to a record 125 million tons. Now, a global glut and a stronger dollar has U.S. coal captive, Daniels said.
Even as U.S. consumption declines, the world’s appetite for coal is still expanding, with annual growth of 2.1 percent through 2019, the Paris-based International Energy Agency forecast in its December Medium-Term Market report.
Appalachia, once the cradle of the U.S. coal industry, is also home to the Marcellus formation, the nation’s biggest shale-gas deposit.
