The United States has plenty of coal, but does anyone want it? Increasingly, the answer seems to be "no." Market forces are making it less appealing than natural gas, and financiers don't want to get involved with it.
United States President Donald Trump has been promising to breathe life back into the country’s domestic coal industry since the campaign trail. In many ways, it seems like a mission doomed to fail.
Worldwide, countries are moving away from coal as an energy source, and even in Trump’s backyard, market forces are diminishing coal-generated power’s presence.
Coal fades out
Domestic coal production in the U.S. declined by 18 percent in 2016 compared to the year before and has been at the lowest level since 1978. Coal production for first half of 2017 was 2.6 percent lower than the second half 2016.
The combination of cheap natural gas, aging coal plants and stagnating electricity demand has accelerated the reduction of coal generation in the energy mix. Natural gas-fired generation surpassed coal-fired generation for the first time in 2016 and accounted for 34 percent of the total electricity generation.
“The way to look at the U.S. market is to remember there is an abundance of cheap natural gas,” said Senior Analyst Vishal Thiruvedula, a commodities researcher with Thomson Reuters. “It’s the obvious answer. There’s a good amount of supply at a cheaper rate, so there isn’t really any incentive to use coal rather than natural gas.”
Although coal is plentiful in the U.S., the availability and price of natural gas make coal less economically viable as a fuel source.
“Trying to get coal out of the U.S. is a very expensive proposition,” Thiruvedula said. “The mines are located in Illinois, the Appalachian basin or the Powder River area in Wyoming, and the coal isn’t all of the same quality. Just to get the coal to from the mine to the port itself is very expensive. On top of that, when you’re transporting coal, you’re competing with other commodities that need barges and railcars. ”
With demand slackening, there’s no incentive to build new coal facilities or renovate existing ones.
“No one is investing in coal,” Thiruvedula said. “Banks are reluctant to finance coal fired projects or coal mining projects because of the long term viability of coal as a source of energy.
A slow and steady decline
Although it’s possible market factors could change and coal could become in-demand again, Thiruvdeula does not think that is likely.
“International demand for coal is mostly driven by what China and India are doing,” he said. “When you look at China and the policies it is adopting, they’re trying to reduce the amount of coal they use. They don’t want to use more of it.”
Thus, with a diminished domestic market and declining international growth, there seems to be little President Trump could actually do to jump-start the coal industry. This, too, is borne out by numbers.
In 2016, coal fired power plants with a combined capacity of 13.6 gigawatts (GW) were shut down with an expected 7.6 GW scheduled to be shut down in 2017 followed by an expected 13 GW in 2018. Since the factors driving the decline in the coal industry are market driven and with no significant coal projects in the pipeline, the Trump administration is unlikely to have a positive impact on coal producers.
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