When this year began, coal operators knew they would be facing a challenging market. Low natural gas prices and a shrinking thermal market were already weighing heavy on everyone’s minds when the coronavirus (COVID-19) dealt a crushing blow to energy markets. An ill-timed price war by the Russians and the Saudis and a lack of demand drove petroleum prices to rock bottom. Natural gas is now trading well below $2 per million Btu (mm-
Btu), which is where coal trades. The industry was not expecting 2020 to be a banner year, but no one would have believed that coal would become the most expensive fossil fuel by the end of the first quarter.
Readers will see throughout this edition that different regions are experiencing various market conditions. South Africa briefly closed coal mines and then reopened them to fuel power stations. Australia, Indonesia and Canada are trying to maintain, if not grow, coal exports. Large operations in Colombia and Poland have been idled. China, India, Russia and the U.S. are restarting coal operations as their economies rebuild.
Hopefully, the worst of the damage created by the COVID-19 pandemic has been done. On p. 7, coal production data indicates that, at the end of April, production in the U.S. was down 21% compared to a year ago. At the same time, unemployment figures hit 20% in the U.S.
For U.S. operators, there are some possible situations with natural gas that could work in their favor. In the Dateline Washington column (see p. 12), Conor Bernstein discusses the implications of a lack of fuel diversity for power generation. Lower crude production will reduce byproduct natural gas production, and some energy analysts are predicting natural gas prices to climb to $3/mmBtu by year end. Could that move be high enough to get utilities to switch from natural gas back to coal? Prices above $4/mmBtu would be better.
No one knows how long COVID-19 will be with us, which creates considerable economic uncertainty. We do know that coal is an essential fuel for power generation and an essential ingredient for steel production. Assuming the world economy rebounds, the second half of 2020 should be better than the first half and next year could improve further. For now, coal operators need to focus on safety, controlling costs and customer service. Market conditions will never be ideal, but they will eventually improve and those that navigated effectively through these turbulent times will reap the rewards of future growth opportunities.