This article was written by Oilprice.com -- the leading provider of energy news in the world. Also check out these recent articles:
The coal market in the United States continues to shrink, dimming the industry's future prospects. New data from the Energy Information Administration shows that planned retirements for coal-fired power plants continue to pile up. The EIA projected last November that 60 gigawatts of coal capacity would be closed down between 2012 and 2020. But in the few short months since they released that estimate, utilities announced that an additional 5,360 megawatts of coal capacity would be retired in the next few years.
The closings come from around the country. The Tennessee Valley Authority announced that they would close 3 gigawatts of coal-fired power plants. Although they gave no timeline for their closure, they indicated that their units will have to be shuttered ahead of the implementation of the EPA's Mercury and Air Toxics Standards (MATS) rule in April 2015, which limits the amount of toxic mercury pollution from power plants.
South Carolina also announced the closure of a 295-megawatt facility before 2015. Its owner, South Carolina Electric & Gas had originally planned on converting it to natural gas, which would have extended its life. The Michigan Public Service Commission approved a bond that would cover the costs of closing of seven coal generating units at three sites by April 2016. The owners of these plants – with a combined capacity of nearly 1,000 gigawatts – had considered installing pollution control technology allowing them to comply with EPA rules, but figured it was uneconomical to do so. Those plants will be closed. And finally, in Georgia, a small 155-megawatt coal plant will be closed before the MATS rule goes into effect. Georgia Power had considered converting the plant to burn biomass, allowing it to continue operations, but concluded it was too expensive.
These announcements come on top of EIA's assessment from four months ago, and there will likely be more announcements from power plant executives in the coming months and years. This spells trouble for the coal-mining industry, which is seeing its market shrink year after year. With low demand, coal producers have looked overseas. U.S. coal exports have climbed from below 80 million metric tons in 2010 to 106.7 million metric tons in 2013. Still there may not be a lot of room to grow from those levels as the U.S. has to compete with low cost producers around the world such as Indonesia, Australia, and Russia. Much of the demand growth is in Asia, where U.S. competitors are better positioned. According to the Wall Street Journal, exporting coal from the U.S. to Asia is costly, due to the truck, rail and shipping costs, raising the price per ton by about $50. American coal producers are already trying to get in on a global market that is well-supplied. Higher supplies have outstripped demand, causing coal prices to crash to $80 per ton, down from around $130 per ton just three years ago.
The outlook for 2014 is not much better. U.S. coal was poised to have a bounce back year as natural gas prices hit multi-year highs, but it may not be enough. Emerging market demand, which has been the driver of growth in recent years, is stalling. This may be a further drag on coal prices, which could be headed for a third straight year of declines. Prices have dropped by half since 2011, and are down by 70% since 2008.
China, in particular, is a major reason for the gloom. It consumes about as much coal as the rest of the world combined, but growth may have plateaued, at least for the time being. Its economy is cooling, sparking fears about an imminent contraction as it struggles to maintain its main sources of economic growth in heavy industry. Also, it recently declared a "war on pollution," and efforts to clean up the air will inevitably mean slashing the rate at which it burns coal.
To be clear, it's certainly not the case that coal will shrink in emerging markets the way it is in the United States. The Wall Street Journal quotes Matt Preston with Wood Mackenzie on the big picture. "There are two billion people in Asia who need more power, so eventually more U.S. coal will get onto global markets," he says. It is definitely true that over a billion people around the world need access to electricity, but it may not happen anytime soon, nor is it clear that all of the exiting U.S. coal producers will still be around to be the ones that supply the fuel.
