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US rail strike would devastate winter coal deliveries: NMA

Highlights

Energy security of seaborne markets could be affected: CEO

Less-dispatchable coal could boost US power prices as Henry Hub gas futures rally

Pre-winter coal restocking could be hamstrung by a US rail strike if railroads and labor unions can't agree on a new contract before Friday's deadline, the National Mining Association said in a statement released Sept. 12.

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"Ongoing rail service issues continue to threaten coal deliveries, impeding the delivery of essential fuel as utilities work to shield consumers from soaring natural gas prices and build up stockpiles to ensure they have the fuel security needed for the winter," said NMA CEO Rich Nolan.

The logistics threat to winter coal deliveries comes amid a rally in natural gas prices. Platts assessments of the Henry Hub natural gas futures contract settled at a month-to-date September average of $8.324/MMBtu, up 74.4% from the same period a year ago, according to S&P Global Commodity Insights.

With less dispatchable coal available, power consumers could see prices soar on the back of near $9/MMBtu Henry Hub bullishness.

"The US has abundant mined resources, but they are dependent on reliable, efficient rail service," Nolan said.

The contract dispute over working hours, rigid schedules, cash bonuses, and back pay has already affected utility coal deliveries into the third quarter, said Platts Analytics Senior Analyst Wendy Schallom.

"We remain concerned that rail delivery coal may again be impacted, as early as Sept. 16, as unresolved negotiations continue between the railroads and unions which represent railroad workers in contract negotiations but may lead to worker strikes," Schallom said. "Nearly 75% of the coal that moved to electric utilities in the first half of 2022, 150 million st of the 202 million st, was moved by rail as the primary transportation method, according to [Energy Information Administration] power plant operations data," Schallom said.

The EIA estimates 2022 gas generation as flat on the year at 37.2% as coal-fired generation falls 1.4% on the year to 21.1%, according to its September Short-Term Energy Outlook. If a labor dispute affects core coal transportation infrastructure, it could upend those estimates.

"A rail strike could create a debilitating logistics chokepoint for the movement of energy and materials resources essential to our grid reliability and energy affordability, as well as our manufacturing sector and the energy security of our allies," Nolan said.

Demand for US coal has exponentially increased amid the war in Ukraine and subsequent European Union sanctions against Russian coal. A US rail strike could have rippling geopolitical effects as US major export terminals like Lamberts Point and Dominion Terminal Associates also depend on rail service to bring seaborne coal to market.