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Power plants set to retire in next decade consumed nearly 7% of US coal in 2017

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Essential Energy Insights - September 17, 2020

Essential Energy Insights September 2020

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Power plants set to retire in next decade consumed nearly 7% of US coal in 2017

Coal producers delivered 51.4 million tons of coal, 6.6% of the coal mined in the U.S. in 2017, to power plants scheduled to retire in the next 10 years as a secular decline in domestic demand continues to erode the size of the U.S. coal market.

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While U.S. producers have had some luck moving their product overseas in recent months thanks to an increase in international demand, opportunities at home have continued to shrink as more power plants announce plans to retire their coal-fueled facilities despite the Trump administration's aim to boost the sector.

Of the roughly 330.6 million tons of coal produced from eight U.S. coal regions in the first half of 2018, at least 33.6 million tons, or 10.2%, of that coal was delivered to U.S. power plants that are slated to retire between 2018 and 2032, according to an S&P Global Market Intelligence analysis of production and fuel delivery data.

"More constructive regulations are positive on the margin but do not appear likely to change the utility coal demand picture much, if at all," Seaport Global Securities LLC wrote in an Aug. 16 note on key themes in the energy sector. "There are still likely to be no additional coal plants built in the U.S. with more retirements likely. Utility executives and state politicians remain committed to anti-carbon policies regardless of easing federal regulations."

About 5.9 million tons of coal delivered in 2017 went to plants with retirements scheduled for 2018. The scenario for coal worsens the next year, with about 11.8 million tons of coal exposed to retirements set for 2019. Another 10.4 million tons of coal were delivered in 2017 to plants with retirement set for 2022, and plants that took in 8.0 million tons of coal in 2017 are expected to close in 2025.

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On a tonnage basis, the Powder River Basin is the most exposed to coal plants set to retire. At least 17.8 million tons of coal, or 11.3% of the basin's total production in the first half of 2018, were delivered to plants with announced retirement dates. The Four Corners region will soon see much of its 2017 customer base vanish, with 64.2% of the coal delivered from the region in the first half going to plants with scheduled retirements.

The Illinois Basin and Northern Appalachia, on the other hand, are relatively insulated from scheduled retirements, with only 5.5% and 3.5% of total first-half production respectively going to plants with scheduled retirements. Central Appalachia, where utility demand has shrunk in recent years, is relatively immune to scheduled retirements as the region has pivoted to exports and metallurgical coal production.

Some companies are also more exposed to upcoming retirements than others. Westmoreland Coal Co. produced about 7.4 million tons of coal in the first half of 2018. The equivalent of 92% of the company's first-half coal production was delivered to power plants with plans to retire between 2018 and 2032.

Other large coal producers that delivered more than 1 million tons to coal in the first half to plants with announced plans to retire include Peabody Energy Corp., Arch Coal Inc., Cloud Peak Energy Inc., Blackjewel LLC and Murray Energy Corp. Those deliveries are equivalent to between 3.9% and 12.6% of those companies' production levels in the same period.

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"Coal plant retirements continue to have a sizable impact on U.S. coal demand, accounting for some 3% of the decline in year-to-date demand based on our estimates. Recent retirements have most impacted Powder River Basin coal demand, which was down 5% through June," Peabody President and CEO Glenn Kellow said to investors on a July earnings call.

Pacific Minerals Inc., a Berkshire Hathaway Inc. company that produced 1.4 million tons of coal in the first half, delivers most of the coal from its Jim Bridger mine to the Jim Bridger power plant, which has been scheduled for retirement.

The analysis does not include coal deliveries that would be affected by the late August announcement that FirstEnergy Corp. subsidiary FirstEnergy Solutions Corp. plans to shut down its Bruce Mansfield and W.H. Sammis power plants, which burned another 3.3 million tons and 2.9 million tons, respectively, in 2017. Murray Energy is the primary coal supplier to those power plants.

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