Coal consumption by U.S. commercial and institutional customers and other industrial sectors has been sharply declining in recent years, echoing a drop in overall demand for thermal coal.
Industrial customers and places such as universities and hospitals that burn coal to create their own heat and power are relatively small market segments, especially compared to the 665 million tons consumed by the electric power sector in the U.S. in 2017. The U.S. Energy Information Administration reported just 1.1 million tons of coal were consumed by commercial and institutional customers in 2017 while 33.3 million tons were consumed by "other industrial sectors." That category excludes cokemaking facilities, which buy a high-quality, higher-margin grade of metallurgical coal used to make steel.
Those two slivers of the U.S. coal market are on a trajectory of decline similar to the fall in overall thermal coal demand. Where the metallurgical coal market is exposed to volatile ups and downs based on global demand, other industrial, commercial and institutional coal consumers are subject to a market where environmental pressure, alternative fuel sources and the state of the economy have reduced the appeal of coal.
In 2001, other industrial sector consumers used 65.3 million tons of coal to fire boilers across an array of industries that require large sources of heat or power to run their own operations. That number fell by nearly half in 2017, and the trend appears to have continued in 2018. In the first three quarters of 2018, the non-cokemaking industrial sector consumed 23.3 million tons of coal, down from 24.9 million tons of coal in the same period the year before.
"In places like China, commercial/industrial use is much bigger," said Joe Aldina, director of U.S. coal at PIRA Energy Group, an analytics and forecasting unit of S&P Global Platts. "In papermaking and stuff like that, you're firing a coal boiler, but even some of those have converted to gas. It's been dwindling."
In the U.S., on the other hand, the volumes are small and the extra work necessary to size, store and separate coal for use in industrial boilers can offset the potential benefit of a higher margin.
Some of the top states for non-cokemaking industrial coal consumption in the U.S. are North Dakota, Illinois, Indiana and Iowa, according to the EIA's Coal Data Browser.
Commercial and institutional coal customers in the U.S. consumed about 5.1 million tons of coal in 2004, the highest level since the start of this century. Since then, the segment's coal consumption has plunged, falling 79.3% by 2017 to 1.1 million tons. That figure was likely even lower in 2018, as the most recent EIA data shows 720,000 tons of consumption from that customer group in the first three quarters of the year compared to 771,000 tons in the first three quarters of 2017.
The coal provided to commercial and institutional consumers is generally delivered on relatively low-volume contracts compared to a utility-scale power plant that would supply the power needs for a region. For example, S&P Global Market Intelligence fuel data shows Knight Hawk Coal LLC's Prairie Eagle mine in the Illinois Basin provided about 24,000 tons of coal to a power plant at the University of Missouri's Columbia campus.
While the localized nature of a hospital or a university campus can be a good fit for a private combined heat and power system, many of those facilities have the same widening array of alternatives as utility-scale plants, including natural gas and renewable energy.
Still, coal continues to be a viable option for some in that segment. About 476,449 tons, or about 44.9%, of the coal consumed by the commercial and institutional sector in 2017 was used in Alaska, according to the EIA's Coal Data Browser.
A National Public Radio affiliate reported in July 2018 the University of Alaska Fairbanks completed work on a new coal-fired power plant that replaced an older facility — one of the few new coal-fired plants even publicly contemplated in recent years. University officials told the Anchorage Daily News coal was the least expensive option because the state's gas reserves are too far away to access.
S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.