Making sense of trends and data

Coal is still dying, it's not the rules, it's the market

Published 3.30.2017
LWRAS has long said that coal was not laid low by regulations, but rather by cheap natural gas. As a result, Trump will not bring coal back by cutting regulations. On Tuesday, Trump signed an executive order that would begin the lengthy process to reverse the Clean Power Plan. The Institute for Energy Economics and Financial Analysis (IEEFA) in its 2017 Coal outlook, concurs that coal is still facing market declines.

Last year was a terrible year in coal, and the decline is expected to continue in 2017. The impediment to coal is natural gas. Trump intends to lessen regulation on coal (and his executive order to that effect merely starts the process, it does not in the near term change anything) but also intends to increase fracking of shale, which will increase or maintain the supply of natural gas. Power plants want to use the cheapest fuel source.

In the time of Trump, rather than coal being elevated, renewable energy will be faced with the need to demonstrate its market viability. However, even this will be tempered by state regulation. California isn’t going to generate power with coal just because Trump says so.

Coal exports have also been weak, and are not likely to improve under Trump's "fair trade" policy. Even if coal mines re-open, they will do so with a more automated workforce. Increased automation means fewer employees. None of these points are new to readers here as all these points have been made repeatedly.

The report sees natural gas prices rising, given the increase in rig count (even if many wells have yet to be completed) suggests this may be occur. The IEEFA notes that efficiency of wind and solar have increased, to the point that some analysis asserts price parity. LWRAS is unconvinced of that, but the fact is that renewable energy has not been stagnant the past eight years.

Despite early (and costly) setbacks, The Obama administration continued to support renewable sources of energy as part of the pathway to energy independence. http://www.npr.org/2017/03/28/521805360/what-trump-misses-about-energy-jobs-in-america Renewable energy creates American jobs too. Only shale oil creates more jobs than solar, but solar only took off in states that incentivized it. In other words, where Democrats had political control.

Since 2006, 46,000 megawatts of coal fired power plants have been retired. Coal operated plants are old, and many lack any sort of pollution mitigation technology. The average age is 39, and the typical age for retirement is 50 years. Retired plants can be rebooted, but only if it’s economically feasible to do so, and for many that’s not the case— especially if they have smaller output capacities. There are currently no new coal plants scheduled to be built in the US.

The IEEFA doesn’t see coal demand rising, but notes that coal producers might mine more coal even in the absence of demand. Why? Over optimism or expectation that Trump will somehow tip the scales of the free market?

Coal pricing tracks with natural gas pricing because the two directly compete. Prices for producing natural gas have declined, prices of mining coal have not, at least to the same extent. Based on the data in the report, natural gas prices have been and remain lower than analysts’ models.

China consumes 50% of the world’s coal, but has recently indicated that it wants to migrate its power generation away from coal fired plants. Where does exported US coal go?

Over 80 percent of U.S. coal exports are shipped out of eastern and southern ports, and half of the coal shipped out of the U.S. goes to Europe.26 Some East Coast mining interests still see value in metallurgical sales to Europe in 2017,27 despite the recent price retreat. IEEFA sees several factors standing in the way of an overall increase in exports to Europe.

But coal in Europe is being replaced with lower cost Russian natural gas, even with all the geopolitical risk such a decision creates. Natural gas burns cleaner than coal does. Contra Trump, who knows nothing of materials, there is no such thing as clean coal. Coal, to the extent it’s “clean” gets that way by having it’s emissions scrubbed at the power plant.

Efforts to implement Trump’s executive order with new rules will face public opposition. People generally like the air they breathe to be free of pollutants. Efforts to relax rules on strip mining will face opposition too. Coal jobs are not coming back.

Russia has natural gas that it is leveraging to build influence in Europe, in this case Sweden. However, Russian natural gas also closes off the market for coal. The town’s people aren’t worried about nefarious Russian intent, but the Swedish national government differs, fearing Russia’s real aims.

The Obama Administration was against the pipeline as well, seeing it as a way around the sanctions set for the its invasion of Ukraine. Trump is a fan of Putin, so US policy may now be different. Germany backs the project even as it backs sanctions against Russia.

The nuclear power market continues to struggle too. Westinghouse, owned by Toshiba, files for bankruptcy. It’s been a rough decade for nuclear power, particularly since the tragedy at Fukushima. Neither Westinghouse nor Toshiba were involved in the power plant at Fukushima. General Electric was.

The position here remains the same. Nuclear power is all about the waste created during generation. Unless and until there is a permanent solution, nuclear power generation is not worth the risk. Toshiba’s shareholders are not happy. The company offered no reason for jumping into nuclear power when it did.

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