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Coal bows to natural gas, as consumption falls to lowest since 1984

The U.S. electric-power sector last year consumed the lowest amount of coal since 1984—thanks to competition from natural gas.

The Energy Information Administration’s Today in Energy report Friday showed consumption of 677 million tons of coal by the domestic electric power sector in 2016—and that represented more than 93% of all coal consumed in the country.

Consumption has now dropped by 35% from the peak in 2008, when coal production reached its highest level.

While coal was facing problems from Environmental Protection Agency regulations, “the primary reason that coal use was down was the price of natural gas,” said James Williams, energy economist at WTRG Economics.

“Coal is almost always less expensive,” but natural gas is cleaner, and “natural-gas plants respond faster to changes in power demand than coal plants,” he said.

Over the last 10 years, the price of coal delivered to power plants averaged 50%, compared with that of natural gas, he said. But in 2016, “the cost of coal was 73% that of natural gas, which is the highest since 1978, when there were relatively few gas-powered electric plants.”

Natural-gas prices have also fallen more sharply than coal so far this year. On Thursday, the price for July natural gas NGN17, -0.17% settled at $3.008 per million British thermal units on the New York Mercantile Exchange. According to S&P Global Platts, spot prices for the Central Appalachia coal markets traded at $58.20 a ton at the end of 2016. It traded at $54.30 Thursday, so it is down about 6.7% year to date.

Overall, given the “advantages of lower pollution and flexibility, coal [in 2016] was the most expensive relative to gas in four decades,” said Williams.
Source: MarketWatch

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