Rising US coal exports and soaring domestic prices promise to drive a wave of fuel switching this season as power generators look to natural gas to meet cooling demand amid potentially record summer heat.
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Export projections for first-half 2022 show US coal shipments abroad totaling over 21 million mt to trend at their highest since 2018. According to Platts Analytics, that trend is expected to continue over the balance of this year as surging fuel imports to Europe drives global coal prices higher.
In the US market, coal prices are already surging. Over the past week, Appalachian Basin coal has traded up to $175/st – the highest on record since Platts began assessing the CAPP thermal market back in 2005.
Over the past year, as US coal prices have tripled, domestic power generators have turned increasingly to gas as a thermal power source. During second-quarter 2022, US gas-fired power demand has averaged over 30.9 Bcf/d, a record high for the period that has outpaced the prior peak-season of 2020, when gas prices below $2/MMBtu prompted an earlier wave of coal-to-gas switching.
Strong coal exports and soaring prices add to other constraints on US coal generation stemming from power plant retirements, low production and stocks. Combined, the factors point to another potentially record-breaking summer for natural gas demand from US power generators.
Plant retirements, coal supply
Over the past year, the US power industry has retired some 34 coal-fired power plants with a total estimated capacity of nearly 12.9 GW, data from S&P Global Commodity Insights shows.
The recent plant closures add to even larger waves of coal-plant retirements in prior years. As US coal generating capacity continues to dwindle, gas has become the nation's increasingly dominate thermal fuel source, leaving power generators more reliant on the fuel – regardless of its price.
Constraints on thermal coal supply this year have further limited the fuel's use as a power source this year. As of end-December 2021, US consumer coal stocks were estimated at 99.1 million st, up marginally from the prior quarter-ending estimate, but still at their lowest in over 20 years, data from the US Energy Information Administration shows.
Coal production, meanwhile, has failed to stage a meaningful recovery from its pandemic-fueled decline. In 2022, weekly US coal production has averaged about 11.2 million st, or nearly 13% below the prior five-year average of 12.8 million st, EIA data shows.
With US coal stocks and production both depressed, rising exports have further tightened domestic supply, driving prices to record highs. The growing economic and physical constraints on coal generation come just as the NYMEX Henry Hub futures-market fever appears to have broken, with $6 to $7/MMBtu prices now making gas a slightly more attractive fuel for power generators.
In June, gas-fired power burn has already outpaced Platts Analytics' weather-normal projection for the month by some 300 MMcf/d to average a record-high 38.25 Bcf/d month to date. In July and August – typically summer's hottest months – weather-normal burns are forecast average 42.1 Bcf/d, just undershooting the record 2020 average at 42.6 Bcf/d during the two peak-demand months.
According to the National Weather Service, though, July and August could see record heat across the US with the Rockies, Desert Southwest, Texas and the Northeast at the greatest risk for record-breaking temperatures. Assuming that forecast holds up, US power burns could easily outperform over the balance of summer, making it another record-breaking season for generator gas demand.