U.S. Coal Industry's Uncertain American Future, Part Two: Natural Gas and International Demand for Coal

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Researched by Industrial Info Resources (Sugar Land, Texas)--The U.S. Coal Industry may appear to be down, but it is far from out. A prior article looked at how political factors and environmental law complicate coal's future in the U.S. Power Industry. This article looks at coal's domestic competition with natural gas, and the U.S. coal industry's growing international market.

For more information, see October 29, 2014, article - Coal Industry's Uncertain American Future, Part One: Politics and Environmental Law.

Coal and Gas Go Head-To-Head
For a single month in 2012, coal and natural gas were in a statistical tie in their usage in U.S. power generation sources, each with a share of 32%. That was the first time since 1973 that the two fuels had an equal share of the power generation sector. The overall shares for 2012 were 37% for coal and 30% for natural gas. For reference, coal represented 46% of power generation in 2010 and 48% in 2009, while natural gas was 24% in 2010 and 23% in 2009.

Click on the image at right for a graph detailing U.S. monthly net electric power generation for January 2007 through March 2013.

Uncertainties about regulatory changes and electricity demand tend to favor natural gas over coal. Gas-fired plants are cheaper and faster to build, have lower fuel transportation costs, and are cheaper to run, ramp up and shut down when electricity demand changes. Put together, these factors mean that natural gas is more likely to be the fuel of choice if a plant is to be built or has to change its output in response to demand. In addition, the efficiency and lower emissions of combined-cycle technology make it very hard for coal to compete with recently lower-priced natural gas.

Natural gas prices have played a key role in this changing picture. Between 2005 and 2008, natural gas prices peaked at about $12 to $13 per million British thermal units (MMBtu). Starting in June 2008, natural gas prices plunged to a low of less than $2 per MMBtu in April 2012. Last month, the price hovered around $4 per MMBtu. While this is double the 2012 low, it is considerably lower than the highs of 2008.

Needless to say, these low prices have made it even harder for coal to compete with natural gas. As with many other sectors, however, the specter of regulation could possibly haunt the hydraulic fracturing-created natural gas boom at some point in the future--and natural gas, like coal, is not a renewable fuel, so the current situation cannot last forever.

Despite all the regulatory uncertainty and shutting down of old coal plants, the U.S. Energy Information Administration (EIA) is still projecting that power generation in the U.S. will be about 32% coal-fired as far out as 2040. Domestic pressure on coal is only part of the story. The global market is the other part.

Click on the image at right for a graph detailing electric generation by fuel, 1990-2040.

American Coal's International Market
Natural gas prices are higher around the world than in the U.S., and this has meant an increase in the demand for coal. As a result, U.S. coal producers are now exporting in large amounts. In fact, U.S. coal exports are expected to exceed 100 million tons for a record third consecutive year.

U.S. coal is now being shipped to destinations as far and wide as the U.K., Germany, the Netherlands, Brazil, South Korea, China, Canada, Italy, Mexico and Japan.

The export market is a mixed blessing for U.S. coal, however. Exports have stabilized domestic coal prices, but they have contributed to depressed international prices. As a result, other coal producers are now able to compete effectively with U.S. coal on the world market.

The prior article and the above discussion go to show that the rhetoric of a "War on Coal" is simplistic and belies a complicated domestic and international picture, with many factors in play. Coal is not going away any time soon--domestically or internationally.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three 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.