Column: U.S. coal gets boost from higher gas prices - Reuters

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Heavy equipment excavate anthracite coal from a strip mine in New Castle, Pennsylvania, U.S., July 13, 2020. REUTERS/Dane Rhys

LONDON, July 29 (Reuters) - Rising gas prices are encouraging U.S. electricity generators to raise output from coal-fired units slightly this summer, providing a temporary reprieve for the beleaguered coal mining sector.

U.S. coal production, which was already in long-term decline, slumped during the first wave of coronavirus infections and lockdowns, but has been trending upward since the middle of last year as the economy has recovered.

Mine output averaged 11.7 million short tons per week over the five weeks ending on July 17, up from 9.3 million tons at the same point a year ago, though still down from 13.1 million tons in 2019.

Production is around 18% below the pre-pandemic five-year average, but that is an improvement on a deficit of 40% at the end of May last year, according to estimates prepared by the U.S. Energy Information Administration (EIA).

EIA estimates are based on the volume of coal loaded onto railroad cars each week rather than direct measurements of coal cut ("Weekly coal production report", EIA, July 22).

But power producers' coal stocks have been relatively plentiful so the increase in shipments implies generators are boosting orders and preparing to run coal-fired units for more hours in the months ahead.

HANGING ON

Over the last decade, many coal-fired units have closed, while the remainder have generated for fewer hours, cycling on and off for shorter periods, sometimes at less than full-load.

(Chartbook: https://tmsnrt.rs/3rD6U0F)

The residual coal fleet is generating less efficiently because units spend a higher proportion of their time warming up, synchronising to the grid, and ramping up and down, rather than producing steadily at full output.

Remaining coal units produced an average of just 40% of their maximum theoretical output last year, down from 54% in 2015, while output from the growing number of combined-cycle gas-fired units has been steady at around 56%.

Coal units have increasingly been forced into the uncomfortable role of daily and seasonal load following, a role to which they are not really suited, rather than their traditional function of supplying base load power.

During the first wave of coronavirus, with much of the economy in lockdown, and power consumption falling, coal generators' capacity utilisation slumped to just 26% in April and 28% in May 2020.

In the same months this year, capacity utilisation has bounced back to 35% and 40% respectively and should rise further over the summer as high temperatures and air-conditioning loads boost power demand.

The big freeze across the southwestern United States in February saw coal units surging output to cope with generation lost from gas and wind farms, producing more megawatts than in the same month since 2016.

Since then, gas prices have surged to multi-year highs, which will continue to make coal-fired generation more competitive and allow coal units to capture slightly more market share this summer.

The EIA predicts coal will capture 27% of the generation market in July 2021, up from 22% in the same month last year and 25% in 2019, with the gains coming mostly at the expense of gas ("Short-term energy outlook", EIA, July 7).

As a result, EIA forecasts coal consumption will rise to 60-63 million short tons per month in July and August this year, up from 53-54 million short tons per month at the same point last year.

John Kemp is a Reuters market analyst. The views expressed are his own.

Related columns:

- U.S. gas prices at multi-year highs will protect stocks (Reuters, July 22)

- Rising U.S. gas prices will encourage more coal burning (Reuters, May 14)

- U.S. gas stocks and prices normalise after cold snap (Reuters, March 16)

- Big freeze rebalances U.S. gas market (Reuters, Feb. 26)

Editing by David Evans

Our Standards: The Thomson Reuters Trust Principles.

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