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Released May 18, 2017 | SUGAR LAND
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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Annual demand for coal by U.S. power producers will fall at least 28 million tons, and possibly more, by the end of 2018 as announced power plant closures, conversions and curtailments cut into demand for coal, according to a recent report from the Institute for Energy Economics and Financial Analysis (IEEFA) (Cleveland, Ohio). The author of that report, Seth Feaster, told Industrial Info his estimate was "conservative" because it excluded plants and units that have not yet been publicly designated for closure, conversion or curtailment.
The announced power-plant closures, conversions and curtailments will cut U.S. power-company coal use by about 28.2 million tons by the end of 2018, as predicted by the IEEFA report, which was released April 21. At 2016 prices, that cutback carries a value of $1.1 billion, including transportation, the IEEFA report said.
Coal companies operating in the Powder River and Illinois basins will bear the brunt of the sinking demand, but producers in the Appalachian, Uinta and other basins also will be negatively affected, as the report predicted. The companies expected to be most affected are Peabody Energy Corporation (NYSE:BTU) (St. Louis, Missouri), Cloud Peak Energy Incorporated (NYSE:CLD) (Gillette, Wyoming) and Westmoreland Coal Company (NASDAQ:WLB) (Englewood, Colorado).
Click on the icons at right to see which companies and basins are expected to shoulder the largest share of the decline in demand for coal.
"Coal is under threat in large part because of cheap natural gas and wind power, particularly in the Midwest and Great Plains," Seth Feaster, an IEEFA data analyst and author of the report, "U.S. Coal Phase-Out, Blow by Blow," said in an interview. "Once built, wind power is cheaper in many cases than coal power. The state of Texas recently reported it got about 25% of its electricity from wind power--that's an amazing record."
Feaster told Industrial Info that President Donald Trump's two recent court victories regarding coal-fired power, on the Mercury and Air Toxics Standards (MATS) rule and the Clean Power Plan (CPP) will have "no impact whatsoever" on coal demand this year and next at the 46 units at 25 plants with aggregate summer generating capacity of about 16,000 megawatts (MW) that IEEFA assessed.
"It's hard to see this story getting a lot better for coal, despite some price-driven fuel switching that took place in early 2017," he said. "It's hard to see coal doing anything but treading water for the near future, and it may not even be able to do that." He added that since many utilities were in an advanced stage of compliance with MATS and the CPP, he saw any potential changes to those laws as not having a material impact on the post-2018 assessment for coal demand at U.S. generators.
The Trump administration recently was given authority by federal appeals courts to withdraw and revise the completed MATS rule and the CPP. Comments by the president and his EPA Administrator, Scott Pruitt, have suggested the administration's revisions to those laws would make them friendlier to the energy industry.
Not only will there be no "Trump bump" for coal use in the near term, Feaster added, "it's entirely possible I may have underestimated the amount of coal coming off the market." For example, he said his analysis only focused on plants and units whose owners have announced plans to close, convert or curtail those assets through yearend 2018. For that reason, his analysis did not include the potential impact of the planned closure of the Navajo Generating Station (NGS), the West's largest coal-fired power plant, on coal markets. That plant is scheduled to close by the end of 2019. For more on the announced closure of NGS, see April 3, 2017, article - Coal-Fired Power Takes Another Hit as Owners Decide to Close Navajo Generating Station. For more on the divergence between President Trump and the leaders of coal-burning utilities, see April 20, 2017, article - Trump, Utilities Disagree Over the Future of Coal-Fired Generation.
"U.S. Coal Phase-Out, Blow by Blow" identified coal-fired units whose owners have announced retirement or conversion dates through the end of 2018. "Our analysis is conservative in that it considers only those plants and units seem either certain or all but certain to close by the end of 2018," wrote Feaster. "We do not include some possible--perhaps probable--closures of plants like the Navajo Generating Station in Arizona. Nor have we included some plants in Texas, Ohio and Florida that have been shown to be uneconomical to run and highly likely to be retired in the near future but have not been formally designated for retirement."
The announced closures, conversions or curtailments IEEFA did focus on involved 46 units at 25 plants with aggregate summer generating capacity of about 16,000 MW, about 5.7% of the overall summertime generating capacity. The coal-fired plants scheduled to be retired in 2017 include assets owned by Nevada Power (Las Vegas, Nevada), Public Service Company of Colorado (Minneapolis, Minnesota), Florida Power & Light (Juno Beach, Florida), Tennessee Valley Authority (NYSE:TVC) (Knoxville, Tennessee), Virginia Power (Richmond, Virginia), Appalachian Power (Charleston, West Virginia) and others.
Plants scheduled to be closed, converted or curtailed in 2018 include units owned by Duke Energy (NYSE:DUK) (Charlotte, North Carolina), JEA (Jacksonville, Florida), Dayton Power & Light (Dayton, Ohio), Northern Indiana Public Service Company (Merrillville, Indiana), City Public Service of San Antonio (San Antonio, Texas), Wisconsin Power & Light (Green Bay, Wisconsin), Oklahoma Gas & Electric (NYSE:OGE) (Oklahoma City, Oklahoma) and others.
The U.S. Energy Information Administration (EIA) (Washington, D.C.) recently reported coal-fired electricity generators accounted for about 25% of operating electricity generating capacity in the United States and generated about 30% of U.S. electricity in 2016. Most U.S. coal-fired capacity (88%) was built between 1950 and 1990, and the capacity-weighted average age of operating coal facilities is 39 years, it added. The agency also reported on the continuing reduction of electricity generated by coal. Since 2007, the amount of electricity produced from coal has fallen 40%, from 2 billion kilowatt-hours in 2007 to 1.2 billion kilowatt-hours in 2016, EIA said.
Click on the icon at right to see coal's declining amount of electricity production since 2005.
The EIA's most recent Short-Term Energy Outlook (STEO), released May 9, predicted U.S. coal production will rise this year and next. The agency forecast a growth in demand for U.S. coal exports as contributing to a 5% increase in coal production this year compared to 2016. Forecast growth in coal-fired electricity generation leads to an additional 1% increase in coal production next year, EIA said. The agency estimated the delivered coal price averaged $2.11/MMBtu in 2016, a 5% decline from the 2015 price. Coal prices are expected to increase slightly in 2017 and 2018 to $2.16/MMBtu and $2.22/MMBtu, respectively, EIA said in the STEO.
Click on the icon at right to see EIA's forecast of coal production.
When asked about the EIA's forecast, IEEFA's Feaster said he wasn't trying to predict coal production or coal demand, a calculation "that has many moving parts." He said he focused on the amount of coal demand that would be removed from the market when these announced closures, conversions and curtailments take place.
"If you remove 28.2 million tons of demand from the market, the remaining plants may use more or less coal, depending on various factors, including the weather and the price-competitiveness with other fuels like natural gas," he said. "When you close coal-fired power plants, you remove demand from the market. If EIA sees increases coal burn at utilities, that must mean the remaining plants are expected to burn that much more." He added that many coal plants are not running at nearly full capacity, leaving room for additional coal consumption and increased power output, providing coal is competitively priced against natural gas.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
The announced power-plant closures, conversions and curtailments will cut U.S. power-company coal use by about 28.2 million tons by the end of 2018, as predicted by the IEEFA report, which was released April 21. At 2016 prices, that cutback carries a value of $1.1 billion, including transportation, the IEEFA report said.
Coal companies operating in the Powder River and Illinois basins will bear the brunt of the sinking demand, but producers in the Appalachian, Uinta and other basins also will be negatively affected, as the report predicted. The companies expected to be most affected are Peabody Energy Corporation (NYSE:BTU) (St. Louis, Missouri), Cloud Peak Energy Incorporated (NYSE:CLD) (Gillette, Wyoming) and Westmoreland Coal Company (NASDAQ:WLB) (Englewood, Colorado).
Click on the icons at right to see which companies and basins are expected to shoulder the largest share of the decline in demand for coal."Coal is under threat in large part because of cheap natural gas and wind power, particularly in the Midwest and Great Plains," Seth Feaster, an IEEFA data analyst and author of the report, "U.S. Coal Phase-Out, Blow by Blow," said in an interview. "Once built, wind power is cheaper in many cases than coal power. The state of Texas recently reported it got about 25% of its electricity from wind power--that's an amazing record."
Feaster told Industrial Info that President Donald Trump's two recent court victories regarding coal-fired power, on the Mercury and Air Toxics Standards (MATS) rule and the Clean Power Plan (CPP) will have "no impact whatsoever" on coal demand this year and next at the 46 units at 25 plants with aggregate summer generating capacity of about 16,000 megawatts (MW) that IEEFA assessed.
"It's hard to see this story getting a lot better for coal, despite some price-driven fuel switching that took place in early 2017," he said. "It's hard to see coal doing anything but treading water for the near future, and it may not even be able to do that." He added that since many utilities were in an advanced stage of compliance with MATS and the CPP, he saw any potential changes to those laws as not having a material impact on the post-2018 assessment for coal demand at U.S. generators.
The Trump administration recently was given authority by federal appeals courts to withdraw and revise the completed MATS rule and the CPP. Comments by the president and his EPA Administrator, Scott Pruitt, have suggested the administration's revisions to those laws would make them friendlier to the energy industry.
Not only will there be no "Trump bump" for coal use in the near term, Feaster added, "it's entirely possible I may have underestimated the amount of coal coming off the market." For example, he said his analysis only focused on plants and units whose owners have announced plans to close, convert or curtail those assets through yearend 2018. For that reason, his analysis did not include the potential impact of the planned closure of the Navajo Generating Station (NGS), the West's largest coal-fired power plant, on coal markets. That plant is scheduled to close by the end of 2019. For more on the announced closure of NGS, see April 3, 2017, article - Coal-Fired Power Takes Another Hit as Owners Decide to Close Navajo Generating Station. For more on the divergence between President Trump and the leaders of coal-burning utilities, see April 20, 2017, article - Trump, Utilities Disagree Over the Future of Coal-Fired Generation.
"U.S. Coal Phase-Out, Blow by Blow" identified coal-fired units whose owners have announced retirement or conversion dates through the end of 2018. "Our analysis is conservative in that it considers only those plants and units seem either certain or all but certain to close by the end of 2018," wrote Feaster. "We do not include some possible--perhaps probable--closures of plants like the Navajo Generating Station in Arizona. Nor have we included some plants in Texas, Ohio and Florida that have been shown to be uneconomical to run and highly likely to be retired in the near future but have not been formally designated for retirement."
The announced closures, conversions or curtailments IEEFA did focus on involved 46 units at 25 plants with aggregate summer generating capacity of about 16,000 MW, about 5.7% of the overall summertime generating capacity. The coal-fired plants scheduled to be retired in 2017 include assets owned by Nevada Power (Las Vegas, Nevada), Public Service Company of Colorado (Minneapolis, Minnesota), Florida Power & Light (Juno Beach, Florida), Tennessee Valley Authority (NYSE:TVC) (Knoxville, Tennessee), Virginia Power (Richmond, Virginia), Appalachian Power (Charleston, West Virginia) and others.
Plants scheduled to be closed, converted or curtailed in 2018 include units owned by Duke Energy (NYSE:DUK) (Charlotte, North Carolina), JEA (Jacksonville, Florida), Dayton Power & Light (Dayton, Ohio), Northern Indiana Public Service Company (Merrillville, Indiana), City Public Service of San Antonio (San Antonio, Texas), Wisconsin Power & Light (Green Bay, Wisconsin), Oklahoma Gas & Electric (NYSE:OGE) (Oklahoma City, Oklahoma) and others.
The U.S. Energy Information Administration (EIA) (Washington, D.C.) recently reported coal-fired electricity generators accounted for about 25% of operating electricity generating capacity in the United States and generated about 30% of U.S. electricity in 2016. Most U.S. coal-fired capacity (88%) was built between 1950 and 1990, and the capacity-weighted average age of operating coal facilities is 39 years, it added. The agency also reported on the continuing reduction of electricity generated by coal. Since 2007, the amount of electricity produced from coal has fallen 40%, from 2 billion kilowatt-hours in 2007 to 1.2 billion kilowatt-hours in 2016, EIA said.
Click on the icon at right to see coal's declining amount of electricity production since 2005.The EIA's most recent Short-Term Energy Outlook (STEO), released May 9, predicted U.S. coal production will rise this year and next. The agency forecast a growth in demand for U.S. coal exports as contributing to a 5% increase in coal production this year compared to 2016. Forecast growth in coal-fired electricity generation leads to an additional 1% increase in coal production next year, EIA said. The agency estimated the delivered coal price averaged $2.11/MMBtu in 2016, a 5% decline from the 2015 price. Coal prices are expected to increase slightly in 2017 and 2018 to $2.16/MMBtu and $2.22/MMBtu, respectively, EIA said in the STEO.
Click on the icon at right to see EIA's forecast of coal production.When asked about the EIA's forecast, IEEFA's Feaster said he wasn't trying to predict coal production or coal demand, a calculation "that has many moving parts." He said he focused on the amount of coal demand that would be removed from the market when these announced closures, conversions and curtailments take place.
"If you remove 28.2 million tons of demand from the market, the remaining plants may use more or less coal, depending on various factors, including the weather and the price-competitiveness with other fuels like natural gas," he said. "When you close coal-fired power plants, you remove demand from the market. If EIA sees increases coal burn at utilities, that must mean the remaining plants are expected to burn that much more." He added that many coal plants are not running at nearly full capacity, leaving room for additional coal consumption and increased power output, providing coal is competitively priced against natural gas.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
