It’s been a long time coming, maybe two or three years. This month, Coal Age publishes numbers from the U.S. Energy Information Administration (EIA) that show a positive year-on-year gain for year-to-date coal production (See Top 10 Coal Producing States and Regions, p. 7). U.S. coal production finally bounced and indicators are pointing toward a healthy market this year. The EIA is estimating that total domestic coal demand will increase by 13% in 2021 versus 2020. During the first quarter, coal’s share in the electric generation mix grew to 23% from 18% during the same period one year ago.
The key to the overall recovery in the coal market is energy demand. This edition has several news stories compiled from publicly available first-quarter earnings reports. What these stories have in common is executives discussing improving demand and their ability to lower their cash cost per ton. CONSOL Energy CEO Jimmy Brock said most of their domestic customer stockpiles are at or below target levels and they had restarted a fifth longwall that had been temporarily idled. Similarly, Alliance Resources CEO Joe Craft said they see energy demand improving and the company raised its sales targets for 2021.
Natural gas spot prices are approaching $3 per million Btu. At those levels, coal can compete. The EIA predicted that May dry natural gas production will average 90.8 billion cubic feet per day (Bcf/d), compared with 87.8 Bcf/d in May 2020. The record for U.S. natural gas production was set in December 2019 when the average hit 97 Bcf/d. May 2020 was the low point (brought about by the pandemic) until February 2021, when weather-related well freeze-offs kept more gas off the market.
Should the U.S. experience record heat this summer, ratepayers could get burned again in California and Texas. Several states import electricity from other states, and California, which experienced rolling blackouts last summer, is the largest electricity importer. This was an important part of the discussion at the North American Electric Reliability Corp. (NERC)
most recent quarterly Board of Trustees meeting. They received a preview of NERC’s 2021 Summer Reliability Assessment, which is scheduled to be released at the end of May. The assessment warns of regions where the risk of energy shortfalls during extreme conditions are elevated or high. Texas, New England and MISO have an “elevated risk.” California was singled out as the greatest concern, where up to 11 GW of additional transfers are expected during the late afternoon, compared to the 1 GW of transfer needed on a normal peak day.
This summer could be the one when people begin to connect the dots between energy reliability and fossil fuels, and realize the importance of a diversified energy portfolio that includes coal-fired generation.