A post-Coal U.S. is in sight

It’s only a matter of time before U.S. coal consumption plummets . In this article, we’ll discuss how coal’s struggles will provide significant opportunities for natural gas and renewables.

Upstream woes continue

United States YTD coal production is down over 25% from 2019. This cannot be totally attributed to COVID-19, either: production levels in (pre-pandemic) January 2020 were about 15% lower than January 2019. Declining coal production is a consistent, years-long trend.

Declining production is showing up downstream, in electricity generation statistics. According to the EIA’s latest data, coal generation at utility-scale facilities reached nearly 90,000 Megawatt hours in July 2020, down 10% and 22% from the same prior-year periods in 2019 and 2018, respectively. And it’s worth noting that July was a relatively good month for coal consumption.

Except for July, monthly coal consumption at utility scale facilities this year is down more than 30% from comparable 2018 levels. There are three explanations for this shift: first, electricity consumption is highly tied to economic activity, which is down sharply this year amid the worst economic crisis since the Great Depression; second, weather patterns and temperatures can vary significantly from year-to-year, affecting consumption totals; finally, coal is getting squeezed out by more competitive generation sources, such as natural gas and renewables. Low natural gas prices and the renewed focus on climate change will likely restrict coal’s revival.

Coal’s share of electricity generation at utility-scale facilities has shown year-over-year declines for over 30 months. Indeed, the recent uptick in coal consumption could reflect something akin to a “dead cat bounce,” as surges in coal inventories cratered prices and incentivized greater purchases. We expect coal usage to continue to trend downward, especially over the medium-term.

Coal’s decline benefits natural gas and renewables

As coal has declined, renewables – and especially natural gas – have become increasingly dominant players in the U.S. electricity generation mix. In (pre-pandemic) January 2020, natural gas burn stood at 39% of all generation at utility-scale facilities, up from 30% in January 2018. With coal’s share falling from 32% to 19% over the same time period, natural gas took the bulk of generation that would have gone to coal. We suspect that trend to continue over the medium-term: natural gas will be a major and perhaps primary beneficiary of coal’s decline. In a future article, we’ll take a closer look at how natural gas and renewables could fare as we move closer and closer to a post-coal environment in the U.S.