Asproducers contend with mounting stockpiles and falling consumption this year,the U.S. Energy Information Administration projects the largest annualproduction decline on both a percentage and tonnage basis since the beginningof record keeping in 1949.
Inits latest "Short-Term Energy Outlook," the government agencyprojects that 2016 coal production will fall 16.7% to 746 million tons, a 0.9%decline versus the prior outlook, before recovering 4.3% to 778 million tons in2017. If 2016 production meets the EIA's projection, it would mark a greaterthan 25% decrease from the 2014 total of 1 billion tons.
Thegovernment agency expects the largest production cuts to come from theAppalachian and Western regions. At 15% and 20%, respectively, those cutscompare to a drop in Interior region production of 9%.
Thefalling production comes as producers struggle to rationalize production in theface of falling demand. According to the government agency, domestic coal-firedgenerators burned an average of 948 million tons annually from 1997 through2015. According to the "Short-Term Energy Outlook" released May 10,the government agency lowered its latest forecast for 2016 by 1.1% versus theprior outlook to 682million tons, a 7.8% drop year on year.
Power-sectorcoal consumption accounts for more than 90% of domestic coal consumption,according to the EIA. The government agency blamed falling coal demand on thisyear's mild winter, low natural gas prices and coal plant deactivationsstemming from a combination of competition with natural gas-fired plants andburdensome environmental regulations.
Lastmonth, the government had projected that coal would account for roughly 31% ofthe nation's electricity needs to natural gas' 33.9% in 2016, but the latestprojections have coal providing roughly 30.5% of generation to natural gas' 34%.
Theshift in coal consumption patterns has the nation's coal stockpiles rising.According to the government agency, power-sector coal stockpiles ended Februaryat 189 million tons. "This pattern deviates from the normal seasonalpattern where stockpiles decrease during the winter months," the reportsaid. "U.S. end-of-February coal stockpiles were still at high levels,despite the coal plant retirements that have occurred in recent months."
TheFebruary stockpile level is 25.4% above the 10-year average for the month andnearly flat versus the prior month, according to the EIA, and the governmentagency estimated February days of burn were 22.8% and 44.2% above the five-yearaverage for bituminous and subbituminous coal, respectively.
TheEIA projects that secondary coal stockpiles will end the year at 184.3 milliontons, 1.4% above the prior outlook, but down 10.1% year over year.
Meanwhile,the EIA expects U.S. producers to find little relief in the global coalmarkets.
"Slowergrowth in global coal demand and lower international coal prices havecontributed to a decline in U.S. coal exports," the report said. "Lowermining costs, cheaper transportation costs, and favorable exchange rates areexpected to continue to provide an advantage to mines in other majorcoal-exporting countries compared with U.S. producers."
Thegovernment expects coal exports to total 59.1 million tons in 2016, down 20.1%year over year but up 1% versus the prior outlook, before falling 4.4% in 2017to 56.5 million tons, a 0.3% decline versus the prior outlook.