Coal Industry’s Struggles Continue
Monthly data released for the month of April by the Energy Information Administration (EIA) showed that for the first time, electricity generated from natural gas was equal to generation from coal-fired power plants (see chart). Coal’s share of overall electricity generation dropped to 32%, down 2% from the previous month. The coal industry has been battered by low natural gas prices in recent years, leading to a dramatic erosion of its decades-long dominance in the electric power sector.
Recent events have also illustrated the ongoing struggles for the coal industry. Patriot Coal Corp., a coal mining company in Appalachia, filed for Chapter 11 bankruptcy on July 9, siting a decline in demand for coal. Utilities have been rapidly shifting to natural gas for electricity generation, and its rise has been mirrored by coal’s decline. Natural gas prices remain low, despite recent gains, hovering around $2.75 per million Btu (MMBtu).
The coal industry was also under fire for a recent investigation by National Public Radio (NPR) and the Center for Public Integrity, which found a resurgence in black lung disease being diagnosed among coal miners. Weak enforcement of safety standards by regulators and mining companies exploiting loopholes contributed to a quadrupling of diagnosed cases since 1980’s. Mining regulators are proposing new rules on safety. The National Mining Association (NMA), an industry trade group, says no new regulations are needed, only stronger enforcement of existing rules. No doubt they are concerned about additional costs being levied on top of an already struggling industry.
photo by Arnold Paul
However, the outlook for coal mining is not all bleak. A strong and growing appetite for coal in other countries is pushing up coal demand, allowing U.S. coal producers to export coal. Global demand for coal grew 3.3% last year. While the U.S. shifts from coal to natural gas, Europe is undergoing the reverse process. In Europe, where natural gas prices remain high, coal is seeing somewhat of a comeback in power generation. Surely, Germany’s decision to shutter its nuclear fleet will force it to burn more coal.
But, coal producers see their biggest prize in China, which needs every source of energy it can get its hands on. Several port projects in Washington and Oregon are in the works, which would open up routes to Asia for higher coal exports. In fact, exports of coal hit 12.5 million short tons for April, a record high. The EIA projects coal exports will climb by 4.6% in 2012 over last year. Despite Chinese demand, the port projects will face stiff opposition from environmentalists and locals concerned with being affected by coal dust.
King Coal is in trouble, at least in terms of its position as the dominant source of electricity in the United States. It will be able to compensate with higher overseas demand, but it remains to be seen if that will be enough to stave off decline.
