The Coal in Your Stocking is Worth More this Year
Meristem insight
This time of year, not a lot of people are wishing for coal – that is unless you are a U.S. utility. With the cost of natural gas doubling in 2021 to over $5 MMBtu, power producers are scrambling to switch to coal to satisfy surging customer demand. The problem is that after years of souring public opinion, green initiatives, and under-investment a beaten-down coal industry is simply unable to keep up. The chart below highlights how coal production in the U.S. (the green line) has been in a secular decline the last decade as the U.S. has advocated for more renewable energy sources like wind and solar. With green energy still unable to fill the gap – renewables were less than 20% of 2020 U.S. electricity generation according to the U.S. Energy Information Administration (EIA) – spot prices for coal are more susceptible to significant spikes.
The blue line illustrates the price of Powder River Basin coal, which has skyrocketed to over $30 per short ton, nearly three times it’s average in the last ten years. Similar jumps can be seen in other regions, like Central Appalachian coal, where prices have doubled from this time last year to nearly $100 per short ton. Coal companies are rushing to increase output and deliver coal to market but, like many other areas of the U.S. economy, they face labor shortages and snarled supply chains. Coal inventories in the U.S. have dwindled to levels not seen in nearly 50 years and those who operate the power grid are already stockpiling reserves for the colder months. Let’s hope that one of our gifts this holiday season is a warmer than expected winter, so there is less demand on the grid, and less stress when we open our utility bills
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