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US gas-to-coal switching to boost coal consumption, help trim stocks

Despite a long-term trend of coal power plant closures, and dented energy demand more recently due to the coronavirus crisis, upside for coal has been materializing in the US as gas-fired generators reacted to higher prices in the summer months and coal regained some market share lost in 2019.

S&P Global Platts Analytics expects coal generation and production to ramp up through the rest of 2020.

Platts Analytics projects the combination of seasonal demand patterns, recovering power demand and increasing electricity and gas prices will drive an increase in US coal consumption in the generation sector of 5-15 million st through the end of 2020, compared with 2019.

Though still below 2019 levels in absolute terms, around 3 million st of additional coal consumption has been added from the apparent switch back from gas generation in August of 7-10 aGW. By the end of the year, the continued gas-to-coal switching and overall market improvements are expected to drive monthly coal consumption above 2019 levels.

US coal and gas generation difference 2020 vs 2019

Coal generation had dropped to approximately 18% of total US generation during the first six months of 2020 from approximately 24% during the same period in 2019, losing share to natural gas and solar and wind generation. Platts Analytics expects this to improve to approximately 20% through the end of 2020 as coal generation improves.

Go deeper: Request more details of S&P Global Platts coal analytics coverage

Natural gas is expected to maintain an approximate 38-39% share of total generation, which represents an improvement over the course of this year compared to the 34% contributed through the first half of 2019, based on Platts Analytics data.  Meanwhile, renewables have been steadily improving their share of total US generation from just under 8% in 2017 to approximately 11% this year.

Coal consumption increases are forecast in the MISO, PJM, SERC, ERCOT, and WECC power markets through the end of the year as forecast short-term coal prices remain competitive for generators compared with forecast gas prices.

This is particularly noticeable in MISO and PJM, where typical coal blends include coal from the Illinois Basin, the Powder River Basin and Central Appalachia. This blending will allow typical coal generators to remain competitive with various gas generators even as coal prices strengthen compared with recent levels.

Improving consumption is also driving a drawdown in US coal stocks. This supports a more bullish view for coal production as deliveries recover from the coronavirus pandemic-induced lows and coal stockpiles across the regions return to early 2020 levels from mid-year peaks.

Platts Analytics expects US stocks to have receded to around 120 million st through September, from the recent peak above 154 million st.  We expect further fluctuation to around 134 million st before ending the year near where it began at around 129 million st.   While these stock levels represent three-year highs, they are not record highs, and utilities are able to manage higher stock levels in the current market environment.