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US lignite production falls 7.6% YOY in H1'19 due to plant outages, demand drop

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US lignite production falls 7.6% YOY in H1'19 due to plant outages, demand drop

Total U.S. lignite production declined by about 7.6% in the first half of the year from the first two quarters of 2018 largely due to a power plant maintenance outage in North Dakota and falling demand in Texas.

While Texas led the U.S. in lignite production for years, North Dakota took over in 2018 and has so far maintained its top spot in the first half of the year, according to data compiled by S&P Global Market Intelligence. Lignite producers' output dropped from about 28 million tons in the first half of 2018 to about 25.9 million tons in the first half of 2019.

North Dakota saw the highest percentage decrease in coal production in the first half of 2019 from the first half of 2018. Coal output in the Peace Garden State dropped by 8.7% over the period, while lignite production declined by 7% in Texas and 2.9% total in the other states producing the fuel.

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Steve Van Dyke, vice president of communications for the Lignite Energy Council, said there were no major changes in North Dakota during the period, calling it "business as usual." The fluctuation during the first half was largely due to a scheduled power plant outage for maintenance work, he said. Such outages usually last for a few weeks.

"We had a small uptick in coal last year and it was basically because our largest coal plant, which is a two-unit plant, didn't have a major outage," Van Dyke said. "There in fact was a major outage at that plant this spring."

Coal production in North Dakota has been pretty consistent for years, he said, with demand depending on the weather as well as the Missouri River's water levels, which determine the amount of hydroelectric power being produced. The 100-MW R.M.Heskett Generating Station in North Dakota, which purchased about 465,000 tons of coal from the Beulah mine in 2018, will shut down two of its units by the end of 2021, the plant's owner announced in February. But Van Dyke said he does not expect that closure to affect the state's lignite market too significantly given the plant's size.

Ches Blevins, executive director of the Texas Mining and Reclamation Association in Austin, said he thinks the decline in Texas lignite production is primarily a continuation of the market tightening for coal given low natural gas prices.

"Natural gas has continued to be at historic lows," Blevins said. "So, that has certainly not provided an avenue for the coal fleet to increase its production, and several of the mining operations in Texas had been scaling back their operations based both on the cost of natural gas as well as the policies at the national level that had really been encouraging or pushing a move away from coal."

Coal mines with stable contracts with utilities will continue to produce and remain fairly stable if not slightly increase output, he said, while there is nothing on the horizon likely to change the trajectory of those headed toward closure. Experts estimated earlier this year that Texas' coal mining sector may shut down entirely within a decade if plant retirements continue, natural gas prices remain low and renewable energy sources continue entering the market.

"Coal use in Texas for power generation is going to continue to trend downward," Blevins said. "I think what we're seeing is it's going to be a slow trend, meaning it's still going to be a fairly good percentage of our energy production over the next probably 20 years."

As the cost of renewable energy declines and storage capacity technology becomes more efficient and effective, he said, more of those resources will be added to the grid.

"But as long as you need low-cost coupled with reliability and affordability, you're still going to need that baseload of coal," Blevins said. "The companies that tend to be most active in Texas still see a fairly long horizon where [coal] will be needed and necessary in Texas, partially because even though wind and solar are growing, they're still intermittent."

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