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Hot weather results in above-average coal stockpile draw in July

Hot weather and rising natural gas prices boosted July coalburn and resulted in an above average coal stockpile draw, even as natural gaswon the generation market share battle for the seventh straight month.

The latest government figures have coal's share of U.S.power generation at a significant deficit to that of natural gas through thefirst seven months of the year as coal-fired generation fell by 17% versus thesame period in 2015. According to the U.S. Energy Information Administration,coal provided 686.3 million MWh, or 29%, of the nation's electricity throughthe end of July. Meanwhile, natural gas provided 807.9 million MWh, up 7.7%versus the prior year, to account for 34.2% of the nation's electricity.

Year over year, total electricity production for the sevenmonths ended July 31 was down 1.6% to 2.36 billion MWh.

Electricity generation from renewables was up across theboard, providing 15.8% of power production through July and helping to offsetcoal's declining share of utility-scale generation. Hydroelectric generationclimbed 10.4% to 172.4 million MWh to account for 7.3% of the nation'selectricity production. Solar power production climbed 33.3% to almost 21million MWh, while production from all other renewable sources climbed 15.8% to179.5 million MWh.

According to the U.S. National Oceanic and AtmosphericAdministration, July cooling degree days, a proxy for the month's coolingdemand for energy, were 29% above normal and 19.9% above the year-ago level. Atthe same time, average spot natural gas prices at Henry Hub rose 10.2% versusthe prior month to $2.810/MMBtu in July.

July coal-fired generation climbed 17.6% from the priormonth to 136.9 million MWh and accounted for 33.1% of utility-scale generation,while gas-fired generation climbed 15.1% to 152.5 million MWh to account for36.9% of utility-scale production.

As coal producers maintain production discipline, risingcoal consumption has helped to bring stockpiles lower. According to the EIA,the power sector saw a 13.7 million-ton drawdown of stockpiles, above the 10 million-tonaverage seen in the prior 10 years.

Analysts see the winnowing of stockpiles continuing throughthe end of August. In a Sept. 20 report citing Energy Venture Analysis data,FBR & Co. analyst Lucas Pipes wrote that utility coal stockpiles fell bymore than 9 million tons in August to 164 million tons.

"Encouragingly, August burn nearly matched last year'slevel, down less than 2 [million] tons," Pipes wrote. "Inventories ineach major basin declined by approximately three to 11 days of burn. Wemaintain our view of gradually improving thermal coal fundamentals over theremainder of the year into 2017. We currently do not expect that 'normal'inventory levels of about 130 million tons will be reached before spring 2017."