(SNL, August 24) – Through the first half of the year, natural gas has a healthy lead over coal in terms of generation market share, but June figures show domestic coal-fired generation climbing substantially versus the prior month. Analysts say rising coal burn coupled with continued producer discipline could lead to a return to normal coal stockpile levels, a necessary precursor to price recovery in the domestic thermal market.
The latest government figures have coal’s share of U.S. power generation at a significant deficit to that of natural gas through the first half of the year as coal-fired generation fell by more than one fifth versus the same period in 2015. According to the U.S. Energy Information Administration, coal provided 549.4 million MWh, or 28.2% of the nation’s electricity through the end of June. Meanwhile, natural gas provided 655.5 million MWh, up 7.7% versus the prior year, to account for 33.6% of the nation’s electricity.
Year over year, total electricity production for the six months ended June 30 was down 2.5% to 1.95 billion MWh.
Electricity generation from renewables was up across the board, providing 16.6% of power production through the first half of the year and helping to offset coal’s declining share of utility-scale generation. Hydroelectric generation climbed 11.8% to 151.1 million MWh to account for 7.7% of the nation’s electricity production. Solar power production climbed 30.3% to 16.9 million MWh, while production from all other renewable sources climbed 15.7% to 155 million MWh.
Hot weather in June and rising natural gas prices appear to have boosted coal burn. According to the U.S. National Oceanic and Atmospheric Administration, June cooling degree days, a proxy for the month’s cooling demand for energy, were 26.3% above normal and 5.1% above the year-ago level. At the same time, average spot natural gas prices at Henry Hub rose 32.8% versus the prior month to $2.550/MMBtu in June.
June coal-fired generation climbed 42.1% from the prior month to 116.4 million MWh, to account for 31.5% of utility-scale generation, while gas-fired generation climbed 19.1% to 132.4 million MWh to account for 35.9% of utility-scale production.
As coal producers maintain production discipline, rising coal consumption has helped to bring stockpiles lower. According to the EIA, the power sector saw a 10.19 million ton drawdown of stockpiles, above the highest level of 10.18 million tons seen in the prior 10 years and the 10-year average level of 4.5 million tons.
In an Aug. 22 report citing Energy Venture Analysis data, FBR & Co. analyst Lucas Pipes wrote that utility coal stockpiles fell by more than 12 million tons in July to 173 million tons.
“Encouragingly, July burn nearly matched last year’s level, down less than 1 [million] tons, while receipts were roughly 6.5 million tons below prior-year levels. … We maintain our view of gradually improving thermal coal fundamentals over the remainder of the year and into 2017,” Pipes wrote. “We currently do not expect that ‘normal’ inventory levels of about 130 million tons will be reached before spring 2017.”
