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North Dakota overtakes Texas as top US lignite producer in 2018

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North Dakota overtakes Texas as top US lignite producer in 2018

A sharp decrease in Texas lignite coal output handed North Dakota the title of top U.S. lignite producer in 2018 for the first time in at least a decade, as mine closures and alternative energy sources continue to reduce coal's share of the energy mix in Texas.

Year over year, Texas's lignite production declined 33.2% to 22.7 million tons, while North Dakota's grew by about 3% to 29.6 million tons, according to data compiled by S&P Global Market Intelligence. Total U.S. lignite production dropped 15.7% to 57 million tons.

Texas mined 50.6% less lignite in 2018 than it did in 2011; over the same period, North Dakota's output increased by 5%.

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Ches Blevins, executive director of the Texas Mining and Reclamation Association in Austin, said he is not surprised North Dakota overtook Texas, which has seen several coal mine closures in recent years coupled with power plants shifting toward natural gas generation. With low natural gas prices as well as more wind and solar coming onto Texas's grid, "you're not going to see the increase in demand that would justify opening new coal or lignite operations" or expanding existing sites, he said.

Blevins said the state's lignite production has "probably stabilized somewhat" and he does not foresee any mine closures in 2019.

Mining operations and coal-fired power will remain a large part of Texas's energy portfolio for at least the next 10 to 15 years given the current regulatory environment and support for the fuel, he said.

Other Texas energy experts have said coal mining in the state could shut down entirely within a decade if coal plant retirements continue, natural gas remains cheap and renewable generation from wind and solar continues entering the grid at low price points.

"This has nothing to do with politics," said Fred Beach, assistant director for policy studies at the University of Texas at Austin's Energy Institute, in January. "This is just pure economics."

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Steve Van Dyke, vice president of communications for the Lignite Energy Council, said major, planned outages at power plants help dictate the rise and fall of North Dakota's coal production and consumption. Plant owners typically schedule an outage at each unit about once every three years, generally in the spring or fall when energy demand is reduced, for roughly six to eight weeks to add new systems or perform other major enhancements to the plant. In 2018 Coal Creek, the largest lignite-fueled plant in North Dakota, did not have a major outage, so the state burned more coal.

He forecasts that North Dakota lignite demand will remain "relatively stable" in 2019, though it may be down slightly depending on the plant outage schedule. Coal-fired electricity also costs less in North Dakota than in other parts of the nation because power plants are located adjacent to coal mines, eliminating transportation costs.

"I think it's the price, it's the quantity, it's where the mines and plants are located," Van Dyke said. "All of that stuff really signals that we're probably going to be using coal-based electricity for a long time."

Among the top 15 lignite mines in the U.S., Vistra Energy Corp.'s Kosse Strip mine in Texas, saw one of the biggest year-over-year drops in output, posting a 21% decrease to 8.7 million tons.

NACCO Industries Inc.'s Falkirk mine in North Dakota increased production 14% to 8.2 million tons in 2018, and its Coyote Creek mine raised output 17.4% to 2.5 million tons. The company's Freedom mine was the top producer for the year with 14.2 million tons, a 3.6% decline.

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Coal Forecast Surging Export Volumes Aid Coal Production As Gas Competition Tightens

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Higher export volumes aid coal production as gas competition tightens domestically

Jul. 20 2017 — Coal production made gains through June as modest electricity demand to open the summer was offset by stronger exports. Weekly shipments for June came in 24% higher than the same period last year, continuing the improved production results for 2017. However, easing natural gas prices during June provided little headroom for thermal coal prices. The NYMEX CAPP eased by $0.25/ton (0.5%) for the month, while the NYMEX PRB gained $0.24/ton (2.2%).

Natural gas prices traded lower during June than in May, with low electricity demand doing little to clear surplus storage. After opening the month at $3.05/mmBtu, Henry Hub spot prices varied during mid-month from $2.85-3.12/mmBtu, before closing at $3.07/mmBtu. Natural gas remains in a moderate surplus, with June injections trailing modestly below historical averages. Storage levels as of June 23 stood at 2,816 Bcf, 182 Bcf above five-year averages. The surplus restrained natural gas markets during the month, with warmer weather the last week of June kicking off the cooling season and providing a boost to prices.

Coal inventories remain in surplus as well, with April stockpiles growing to just over 166 million tons, 9.3% above normal. The growth in inventory corresponds to estimated displacement of coal from natural gas generation resulting from Henry Hub prices declining by 20 cents per mmBtu. Looking ahead to the summer season, robust cooling demand could add 1.5 million tons per week to production, which would drive coal production to levels not seen since the summer of 2015. For the four weeks ending June 24, coal shipments averaged 15.5 million tons, as demand into the summer season picks up. Production levels continue to improve overall, about 24% higher than the same period last year. Inventories remain above normal, and low electricity demand shoulder season may do little to clear them, tending to keep a lid on prices.

Higher natural gas prices have boosted coal demand for the first half of 2017, especially compared to the dramatic loss of demand that occurred during the first half of 2016. However, surpluses linger in both the coal and natural gas markets going in to summer. If electricity demand remains low, growth in coal production could taper during the peak season.

On the improved demand picture for the year, the CAPP and NAPP coal regions are projected to beat 2016 production levels. A firmer natural gas strip, easing coal retirements during the year, and stronger seaborne metallurgical markets all contribute to the improved outlook. The markets for Illinois Basin and Southern PRB are also projected to rebound by 44 million tons this year on improved price competitiveness.

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