Energy & Commodities

Electric Power, Coal, Natural Gas June 05, 2025 Comeback kid: Rising gas prices expand near-term use of coal in U.S. power markets Featuring Hill Vaden and Samantha Humphreys Annual coal use in U.S. power generation has declined since the early 2000s as plants retire and renewables and natural gas win market share. However, 2025 may pause or slow the trend, if only temporarily. Coal-markets expert Wendy Schallom joins EnergyCents with hosts Hill Vaden and Sam Humphreys to discuss how two years of stockpile build and higher gas prices in 2025 have increased the near-term competitiveness of coal in U.S. power markets. View Full Transcript Hill Vaden: Welcome back to EnergyCents, an S&P Global Commodity Insights podcast covering all topics on the intersection of energy and finance. This is your host, Hill Vaden, and I'm here as always with Sam Humphreys. Sam, how's it going? Sam Humphreys: It's good, thank you. How are you? Hill Vaden: I'm doing all right. We talked about Mother's Day the other day, but you guys had Mother's Day at a different time of year than we do. Sam Humphreys: It's in March in the UK, just after my birthday and just before Easter. It's lovely. It's like a consecutive run of lovely things. Hill Vaden: Just gifts for mom. Sam Humphreys: I didn't realize it was in May. I'd say gifts through from Christmas to April. It's great. Hill Vaden: So you didn't get a... It's May 13th. This is why it's coming up, listeners. We just had Mother's Day in the US. Sam Humphreys: It's also my mom's birthday today. Just happy birthday mom. Hill Vaden: Happy birthday to your mom. I hope she's a listener. Sam Humphreys: She won't listen to this. Hill Vaden: Well, if they were to listen, they would be hearing what I think was a wonderful conversation with Wendy Schallom about US coal and somewhat of a surprising rising or resurgence this year and coal consumption in the US. Can you maybe set some things up of some key points for people to listen to over the next 30 minutes or so? Sam Humphreys: Yeah, sure. This is something we have very lightly touched on a couple of times this year, and it's this coal use increasing, and I think Wendy phrases it gas-to-coal switching. That's companies power generation switching from gas to coal from various factors rather than coal to gas, which lots of factors for that, weather, gas prices, but that has meant that production may increase. There is a drive to continue this and it's an interesting story and how that looks domestically across the US. We do touch a little bit on some of the international movements that have really impacted this, but it was a fantastic conversation. What about you? What did you think? Hill Vaden: I'll just echo what you said, that it's not a topic that we cover often, which we mentioned, but there's baseload generation. The electricity demand is going up in almost all forecasts and baseload generation is an important part of that equation to complement what's happening with intermittent sources and coal is having more of a moment as a result. So we'll see where it leads to in the future, but it's a great conversation with Wendy and we'll hand off now. Sam Humphreys: Enjoy. Hill Vaden: All right, Well, Wendy, thanks so much for joining us today to talk about coal and US coal use in electricity generation. You're joining us from St. Louis? Wendy Schallom: Yes, thank you for having me. Hill Vaden: Yeah, and I guess you're getting ready for a hot summer as are we here in Houston? Wendy Schallom: Yes, we're very much looking forward to the summer. My son is about ready to finish his freshman year in high school, it's pretty exciting. And just got his driver's permit. Hill Vaden: We're doing the same thing. My son is 15 and just got his driver's permit, as well. Wendy Schallom: A little bit nerve-racking. Hill Vaden: It's very nerve-racking. And he likes to hug the right side of the road. If you're in Houston, just be careful opening your door if you're on the street because he might take it off. But you guys are making progress with it. Wendy Schallom: Yes, actually I've handed that off to my husband. Sam Humphreys: Very wise. To me, by the way, it's insane that you can drive at 15 just saying that. Hill Vaden: To us, it's insane that you drive on the left. Sam Humphreys: Touche. I'll take that. I'll take it. Hill Vaden: All right, well let's talk about coal. Coal is less talked about than it has been in prior generations of energy discussions. Wendy is looking up and skeptical in that. Wendy Schallom: Really? I can't believe that. Yeah, Hill Vaden: But it is increasingly talked about in 2025. I like to say that this year is the record year for coal demand every year. People keep predicting that this is going to be peak coal and then the next year is peak coal again, and the next year is peak coal again. The world keeps using coal even if we're not talking about it as much as we used to. Can you help maybe frame us from a global coal perspective, but more really on the US side of why is there a resurgence of interest in coal all of a sudden this year? Wendy Schallom: The resurgence this year that we're seeing has really been building over the last couple of years because if you look at it this year, we've just come off two years of very significant stockpile build and really for a variety of reasons, starting with weather, lesser expensive natural gas and then a building oversupply of in the generation markets. You talked about the gas-to-coal switching that is really driving this resurgence and this interest this year. That's a little bit at odds with what we've seen over the last several years, really since about 2019 when natural gas growth really started in earnest and started increasing utilization in the power sector. That in addition to the renewables build-out and the aging of the coal plants and the increased retirements over this period since 2019, we've seen a significant period of coal generation declining, so coal consumption has declined along with that. This year really starting at the end of 2024, we've had a period where gas prices have escalated and that has allowed coal consumption to escalate with that because of the desire by the power utilities who were owning these higher stockpiles to bring those stockpiles down and utilize the coal that has been on the ground for them really since the end of February of two years ago. Sam Humphreys: What does that look like in terms of US distribution? Are we looking at this demand increase, want of a better word, equally spread across the states or is it more favored to the Mid-States or East or West Coast? Wendy Schallom: Actually it is spread across the United States, however, it is more concentrated in regions that have remaining coal capacity. We've gone through a period where we've had significant coal retirements in many of the regions. The Western United States doesn't use quite as much coal as the eastern interconnection does. In regions like the Mid-Continent region, so MISO and the PJM region, we've seen a significant increase in coal-fired generation this year compared to last year. Two reasons for that is with the high level of stock in the ground, they're taking that opportunity during these peak power periods of the winter and then the summer to use up those stockpiles. But as I said, we're seeing that increase not just in those two regions, we're seeing it across the midsection of the United States. The SPP, ERCOT there in Texas and even in the southeast, we've seen an increase, such that in terms of these first four months of 2025, we have underestimated actually some of our forecasts for coal-fired generation and coal consumption. In fact, in April we had a forecast of around 22 million tons of coal consumption and we came in more so around 26 million tons for the entirety of the US. That's been fairly consistent across January, February and March, as well. We're going into a little bit of a lull period here where coal-fired generation will come down naturally as all generation demand does throughout the spring. And as particularly as renewables and wind generation increases, that offsets some of the coal-fired generation requirements. However, because of the elevated gas prices this year compared to last year when we were seeing extremely low gas prices, we are still seeing coal consumption elevated over previous year levels. Hill Vaden: Can we talk a little bit about the inventory build? Coal consumption has been down heading into this year, but it sounds like coal acquisition has been steadily increasing. Where are we at levels on a historical basis? Are we 5% above normal, right on normal? Wendy Schallom: Well, we headed into this year significantly above normal, and that really started in February of two years ago when we didn't see the normal weather that we expected to see. The other reason we developed this higher stockpile level, if you remember previous to that even we were in a period globally of much tighter supplies because of the Russia war in Ukraine and the wholesale switch of all energy forms to flood into markets that it needed to move into because of various bans on Russian energy forms. The US at the same time was participating in that market and all energy prices escalated very strongly. And because of the way coal is contracted for, it's slightly different than natural gas, it doesn't respond in just-in-time manner. I mean it has a little bit more of a longer term contract to it. What we saw then is once those prices came down, we maybe had longer-term contracts that were still enforced for the next year. That then led to when the demand didn't show up because of the warmer weather in February, we had utilities decreasing their need for coal, but at the same time the contract was there, so stockpiles then built over this period. We saw that consistently into the next year, even in 2024 because gas at the same time was increasing and the price of gas was decreasing so heavily that it was difficult for much of the coal fire generation to compete with an average of a $2 gas price. That being said, we do in the Powder River Basin, that is the coal that competes most strongly with natural gas at those lower prices and why we did have some pull-down of stockpiles, but why we're seeing significantly more this year is because some of that higher value coal in the eastern market, such as what feeds into PJM is now encouraged to generate. Sam Humphreys: Talking about stockpiles and then I guess production, how long do we think those stockpiles will take to deplete to then push production forward? Because that is something we've not really talked about much recently. You talk about- Wendy Schallom: We haven't had to. Sam Humphreys: ... coal retirement. Exactly. It was about retirement. Wendy Schallom: It was because it's all about retirements. Sam Humphreys: What does it look like now? What's going forward? Wendy Schallom: I'm glad you asked that because of just having worked through my short-term forecast again with our publication just yesterday of our short-term report for the US, we're looking at with the increased power demand and generation of really forecast throughout this year and continuing into next year. The response by the coal suppliers this year has been very moderate. To this point this year, the average production has been really around 9 million times per week. And only recently have we seen it escalate above 9 million tons per week. That by design has been because they were the producers themselves, but also the utilities in buying the coal, they're trying to work down those stockpiles and trying to give the market time to work down those stockpiles because those stockpiles, the utilities were running out of physical space to store the stockpiles. Renegotiation of contracts was ongoing in the last two years. But as far as in terms of your question asking about when are we looking at more normal levels, we've just seen a forecast from our demand perspective and our supply perspective that brings stockpiles down to a more normal level, and doing air quotes, by the end of 2026. Given our current forecast for increased generation this year and next year. And the production levels that while we do have an increased production level, both this year and next year are still really rather moderate compared to previous production levels maybe a decade ago. Hill Vaden: We're getting to a more normal level by the end of 2026, are these on long-term agreements where that build is going to continue or are these agreements rolling over where all of a sudden the inventory goes from normal to undersupplied? Wendy Schallom: I wouldn't say that we're moving towards an undersupply, really. These agreements are ongoing, but they're rolling agreements, so they are actively working to match supply with demand. Over this period, we do not see in our forecast an undersupply developing. Basically, when I talk about a normal level of stockpiles, it's generally in our forecast method is a two-month cover of what the utilities need will be during the period that they're looking two months ahead. When I say it comes back to a normal level, a typical level of a two-month cover is what we achieve by the end of our 2026 forecast. Sam Humphreys: What does this mean for coal retirement? Because we've seen that pushed back somewhat. I know that there have been a few executive orders coming out that are trying to improve conditions to increase production and so on. Is the retirement still on track from what we originally thought or is it much further down the line? Wendy Schallom: That's definitely a question that our North American Power Group focuses on and follows and utilizes in their forecasting. But in terms of the executive orders and retirements, certainly this year, this gas-to-coal switching and the need of the power generation within each individual market is really what drives the scheduled retirements. There's certain policies, yes, that dictate retirement of power generation, but then the need within each market then is adjusting for that. That's what is really driving the delayed coal retirements that you speak of. It's more so about whether each region is its reserve margins and whether each region can meet ongoing baseload or peak demand with the set of units that they have. Even in places like PJM where we've seen delayed coal retirements, it's really more about grid stability and it's more about other aspects than necessarily a market dynamic that can fix it with an executive order about supporting coal supply. The executive orders are, I think, seen to support the coal industry certainly, but there's a lot of open-ended things that we're still analyzing and I think even the industry itself is still analyzing. What we have noticed and the way we view this is this is still separate from what's actually going on in a market where coal is competing with natural gas and coal is competing with renewable generation, that's already on the ground. I'm not even talking about the build-out of more renewable generation, I'm talking about renewables as they are right now. This fluctuation or this elevation of gas prices is really not even specific to the US in terms of the US demand for natural gas, it's also specific to the utilization of natural gas into Europe or export of our LNG product. As our increased generation demand has used up the availability of the natural gas supply, coal is providing the support through this period in which, otherwise, would've expected the retirements, but getting us through this period through the medium term until natural gas can take on the full load. Hill Vaden: Does this feel like a dead cat bounce where it's just a perfect storm where you had a large inventory of coal that had built, which made the price effectively lower and then the gas prices are going up on the other side? Or is this more of structural support? Wendy Schallom: I don't want to call this a dead cat bounce, that's not something I want to call my industry. Certainly. No, I think this is just a natural reaction of the market to all of the different factors that influence the decision-making by the utilities as to what form of generation they need at a specific time, whether it be in the peak period. But, in terms of the US, the coal market is in a state of structural decline because of the retirements of the older units and there's just no getting around the age of the coal units that we do have. This gas-to-coal switching market that we're in is really a function of the market dynamics at this period is how I'd really rather put that. Sam Humphreys: That's nice. Wendy Schallom: Yes, exactly. Sam Humphreys: Cats are good. We've talked about this increasing demand in the US from domestic supply, but just one thing I wanted to ask. Obviously, the US exports quite a lot of coal, as well. How is that balancing with the domestic use? Are exports increasing as well or is that staying relatively flat? Wendy Schallom: Exports had increased over this period. I mean certainly since I was working for a coal company in maybe a decade to 15 years ago, it has come off somewhat, but then saw again a resurgence. Our natural market for a long time for the US had been into the Atlantic markets, but as they are leading the way in coal-fired generation closures and less and less demand there, our exporters have sought out other regions. We've made the wholesale switch to the Asia-Pacific region where demand has been growing. This year, we're a little bit stagnant here at the beginning of this year. We do see import growth in specific regions, however, maybe not quite as much as it had been earlier. That was one of the things I wanted to maybe circle back to was the effect of the tariffs. I know you had brought up the executive orders, but even the tariffs and the uncertainty surrounding the awkward implementation of the trade policy is concerning for us about what happens then if US coal then is put at a more significant disadvantage in terms of cost and price because exports are a growing and important factor within our entire coal market for a US producer. In the face of long-term structural demand domestically, we had a significant amount of producers growing their export potential and focusing heavily on that. With the switch into the Asian region where demand was stronger, we are in the US a little bit at a disadvantage. However, I will say that our exports have made great strides in finding niche markets for our high-value, high-CV coals, and that has allowed us to maintain a specific level of coal exports. We did recently, just yesterday, in fact, decrease our export forecast for US coal. But everything in general has come down a bit because of the sluggishness of demand really in the two largest importers, China and India. Hill Vaden: Can you help us on the export? If China and India are the largest markets, which makes a lot of sense, is a higher percentage of that coal going into power generation? Going to steel? How is it being used on the export by these importing countries? Wendy Schallom: Because our group is not focused on the met coal side, we're focused on the thermal coal. We forecast the coal that is moving into the power generation sector, power generation or other thermal coal used potentially in the industrial markets that is not metallurgical coal, so not into the steel markets. When I talk about in particular India, the US making great strides in terms of export destinations, our largest single destination for US thermal coal is India and has remained India to the tune of around 13, 14 million tons. We expect that to continue, but again, these uncertainties around these tariffs and what happens to the global economic strength really is more concerning. And that uncertainty had led us, as I said, to reduce right now some of our forecasts for thermal coal exports. But that's not just related to the US either. One of the reasons the US, I don't want to say struggles, but it competes with other swing supplies in the market. When I say swing supplies, I mean that can serve either the Atlantic market or the Pacific market. It does actually compete. It does have to compete with Pacific Basin coals from Australia and Indonesia. Those are significantly larger exporters. But it does also compete against the Colombia's, the South African coal that moves into both India and into the wider Asia Pacific market. Because of this maybe sluggish early start to 2025, we've seen Colombia indicate that their production levels that one of their mines is going to be down this year, down from the previous year. We've taken that into consideration into our latest forecast, as well. Because this sluggish demand has really made competition even tighter amongst all of the suppliers, and we've seen coal prices across all major supplies come down and they're competing on price. We've seen US supplies come down to levels. We've seen Colombia levels around $80 a ton, let's say. What's happening is they're finding it more and more difficult to cover the costs of the inflation, the cost of the materials and the supplies to create the coal supplies and to ship the coal supplies to the port because of the high levels of inflation that we've seen over the last couple of years. That has made it more difficult for all of the suppliers within the market as the prices and the demand have stagnated or remained relatively low over these couple of years to maintain market share. That is what we're trying to achieve. As you asked earlier, Samantha, you had asked, "For the US, do you see it flat?" Now we see it relatively flat. I had a forecast earlier that was maybe for a little bit of growth, but we've seen such a sluggish start to 2025 that with the uncertainty moving forward with the tariff situation that we're concerned about, whether that could be achieved. Sam Humphreys: Well, we always like to finish off our episodes with a thing to watch. If you've got the next six months, is there one particular aspect of this industry that you think we should be paying attention to? Wendy Schallom: Absolutely. I mean, the summer you started it off, right? We're looking forward to the summer heat. Yes, that's exactly what we're looking forward to in terms of the coal industry here in the US, the further pull-down of domestic stockpiles, and the ability then for the producers to ramp up production within this year. We're looking for the continued elevation, the continued strength of natural gas prices to continue to encourage that move. Thank you for helping me maybe end on a bit of a brighter note for our US coal supply. Hill Vaden: That was great. I really enjoyed this conversation. Wendy, thank you for joining us and we'll look forward to updating this at some point soon. Thanks. Recommended