Coal use is on the rise in 2021 due to higher prices for natural gas in the United States, shortages of natural gas in Europe, and massive coal expansion in India, China, Russia, and Australia. The glut of natural gas in the United States stemming from the coronavirus pandemic has vanished, causing prices for natural gas to increase and power plant owners to turn to coal. Europe is so short of natural gas that the continent is turning to coal to meet electricity demand that is now back to pre-pandemic levels. Coal usage in Europe increased 10 to 15 percent this year after a colder- and longer-than-usual winter left natural gas storage sites depleted. Further, coal producers around the world are actively pursuing 2.2 billion metric tons per annum of new mine projects, a growth of 30 percent from current production levels, with one quarter (0.6 billion metric tons per annum) of proposed mine capacity currently under construction.
United States
Natural-gas futures on June 18 ended at $3.215 per million British thermal units, 96 percent higher than a year ago and the highest price headed into summer since 2017. Power-plant fuel costs twice what it did at the start of last summer, which will result in higher utility bills and manufacturing costs, resulting in more coal-fired generation. According to the Energy Information Administration, coal-fired generation is 35 percent higher during the first quarter of this year compared to the first quarter of last year, and through May, coal production this year is 7 percent higher than last year. Coal consumption is expected to rebound by 16 percent in the United States in 2021.
Despite the push in the United States toward renewable and natural gas generation, some state legislatures have adopted policies to preserve coal-fired generators. In April 2021, Arkansas, Wyoming, and West Virginia passed laws to protect existing power generation. The Arkansas Affordable Energy Act requires that the state’s Public Service Commission (PSC) evaluate the remaining useful life of an existing electric generation unit and complete a cost-benefit analysis, a rate impact analysis, and a reliability and resilience analysis every three years. The PSC must explicitly state whether a life extension of each unit is in the public interest.
In Wyoming, in order to retire facilities, utilities must demonstrate that the retirement will result in cost savings and will not result in “insufficient amount of reliable and dispatchable capacity.” Having sufficient amounts of reliable and electricity upon demand has been more on the minds of legislators since generation problems became public in both California and Texas. The legislation prevents utilities from “recovery of or earnings on the capital costs associated with electric generation facilities built, in whole or in part, to replace the electricity generated from a retired coal or natural gas electric generation facility that was retired on or after July 1, 2021, unless the above was demonstrated.
West Virginia’s legislation, which is aimed at maintaining employment in the coal mining industry, states:
“It is imperative the State of West Virginia take immediate steps to reverse these undesirable trends to ensure that no more coal-fired plants close, no additional jobs are lost, and long-term state prosperity is maintained…. Public electric utilities in West Virginia should be encouraged to operate their coal-fired plants at maximum reasonable output and for the duration of the life of the plants.”
Europe
Natural gas storage is so low in Europe that the continent cannot afford to run extra power generation with natural gas. Europe faced freezing temperatures earlier this year, boosting demand for heating at a time when liquefied natural gas cargoes were being sent to Asia. Russia sent less gas to the continent via Ukraine ahead of the start of the Nord Stream 2 pipeline to Germany, expected later this year. As a result, European natural gas storage is currently 25 percent below the five-year average and benchmark Dutch gas surged more than 50 percent this year. Futures are currently trading near their highest level for this time of the year since 2008.
Electricity demand, which dipped due to the coronavirus lock downs, is back. Usage in countries including Germany, Spain and the Czech Republic are above the five-year average, while demand is flat in Italy and France. With natural gas supplies tight and heavy maintenance cutting flows from Norway, utilities have turned to coal to meet electricity demand. Coal use in Europe could still be profitable since many utilities hedged the carbon market, where trading is currently near a record. Generators with “highly efficient” new plants may be able to produce power from coal until 2023, even with high carbon prices.
New Coal Mines
A survey of 432 proposed mine projects globally found China, Russia, India, and Australia responsible for 77 percent (1.7 billion metric tons per annum) of the 2.2 billion metric ton new mine activity. These proposed projects would increase coal supply to over four times the 1.5 degrees Celsius-compliant pathway necessary to meet the goal of the Paris climate agreement. While three-fourths (1.6 billion metric tons per annum) of proposed coal mine capacity is in the early stages of planning, the survey found one quarter (0.6 billion metric tons per annum) of proposed mine capacity is already under construction. If tighter emission policies were enacted, these projects could have stranded assets of up to $91 billion.
India’s single largest project, the Siarmal Open Cast mine in Sundergarh district in Odisha could produce 50 million metric tons per annum at peak capacity, with an operational life of 38 years, making it the second largest proposed coal mine in the world after Australia’s Carmichael Project (60 million metric tons per annum). The state-owned enterprise, Coal India Ltd, accounts for 66 percent (250 million metric tons per annum) of the proposed coal mine pipeline.
Conclusion
Coal is mounting a comeback in 2021 due to higher natural gas prices in the United States and shortages of natural gas in Europe. And, globally, new mines in China, Russia, India and Australia could increase coal mine output by 30 percent if all projects are completed. It seems like countries around the world are being cautious about retiring coal-fired power plants, realizing that natural gas may not be available to maintain the reliability and dispatchability needed for a resilient electric system. President Biden should recognize that his goal of being 100 percent carbon neutral in the generating sector by 2035 is not realistic when market forces demonstrate the need for continued coal and natural gas use in the power sector.
