At this point, everyone would like to put 2020 behind them, especially those who work in the energy industry. The precipitous drop in electrical demand during the first half of 2020 wreaked havoc for energy markets, especially the coal business. In 2019, coal production in the U.S. totaled 706 million tons, which was a 7% decrease from 2018. That was the lowest amount of coal produced in the United States since the late 1970s. Weekly coal production figures from the U.S. Energy Information Administration (EIA, see p. 7) indicate the U.S. will post an even greater decline (25%) by year end, a level not seen since the 1960s.

Still, there is good news for U.S. coal operators on the horizon. For 2021, EIA’s forecast for the natural gas share of electricity generation declines to 34% in response to higher natural gas prices. The agency is predicting that coal’s share of electricity generation will grow from 20% in 2020 to 24% in 2021, which is where it stood in 2019. If everything remains the same, meaning the U.S. continues to subsidize it, energy from renewable sources will rise from 20% in 2020 to 22% in 2021. The EIA expects coal production to climb to 625 million tons in 2021, a 19% increase over 2020. Other positive factors could also impact the market, like improving met markets and the thermal export market.

European coal demand grew this summer and so did prices for coal exports to northwestern Europe. It hasn’t been widely reported, but prices have rebounded from less than $40/ton to nearly $60/ton. European power plants began to burn more coal this summer when natural gas prices started to increase. Another factor affecting this market is the large coal export facilities in Colombia. A strike has limited coal exports from the El Cerrejon mine, and two Prodeco operations have been idled since March. If the price were to climb above $65/ton, U.S. coal operators could start exporting more coal to Europe.

Surprisingly, the price into Europe is currently higher than the price of thermal coal exports from Australia into China. Several news outlets reported that Chinese customs authorities have told several Chinese state-owned steelmakers and power plants to stop importing Australian coal (See p. 8). Tensions have been on the rise between the two countries. In addition to thermal and metallurgical-grade coals, Australian exports significant amounts of iron ore and other commodities to China. They will work out their differences and the market will tighten.

As the world shakes off the COVID-19 funk, power demand will steadily increase as manufacturing returns, and business should improve for coal companies in 2021. Enjoy this edition of Coal Age.