Prices for coal have plummeted from their highs of the previous year.
The price of Central Appalachian coal has fallen 57% from the record $205.55 at the beginning of the year to the current $88.80 per short ton.
Since September, when Europe was stocking up for winter, the cash prices for thermal coal produced in northern Appalachia and the Illinois Basin—two regions from which a significant amount of coal is exported—have decreased by more than half. Similar declines have been seen in coal futures that are exported throughout the Pacific from an Australian export terminal.
The markets for natural gas, which is also burnt to produce power, have a significant impact on those for coal. Similar to coal, natural gas supplies that appeared frighteningly low last summer rebounded as a result of an unusually warm winter that reduced the need for heating significantly.
The closing price of natural gas futures for May delivery on Thursday was $2.104 per million British thermal units, a 63% decrease from the previous year.
According to the Energy Information Administration, prices for coal mined in the eastern United States have recently ranged between $3.10 to $3.55 per million BTUs, even after the fall in coal prices. That implies that coal costs may need to decrease even further to become competitive with natural gas.
Renewable energy sources such as wind, solar, hydropower, and biomass are also posing a greater threat to coal. According to federal data keepers, these sources generated more electricity in the United States last year than coal for the first time ever.
Although coal prices are still high compared to pre-epidemic levels, their quick decline demonstrates that power producers all over the world are secure enough in their supplies to quit bidding up cargoes.
According to Andy Blumenfeld, data analytics director at McCloskey by OPIS, a pricing service that is a component of Wall Street Journal publisher Dow Jones & Co., "We moved from undersupplied to oversupplied pretty quickly."
When electricity companies used coal-burning generators to keep air conditioners operating amid some of the hottest temperatures on record in 2021, prices began to soar. The smallest level of stockpiles at American power facilities since the Nixon era.
The invasion of Ukraine resulted in a ban on Russian exports, which further restricted supply. At the same time, the prospect of shortages and the highest natural gas prices in years increased the price that power producers were ready to pay for coal.
Power generators on both sides of the Atlantic were vying for a finite supply of unsold coal by the summer of 2022—another scorcher. According to energy consultancy company Wood Mackenzie, the stockpiles of coal held by North American power generators have decreased to as little as 58 days' worth, or nearly a month less than the five-year average.
Grid operators and utilities were forced to take exceptional measures to reduce coal use before the weather turned cold as a result of cargo getting caught up in congestion at ports and along rail lines. As natural gas prices rose to shale-era highs, the Colorado-based subsidiary of Xcel Energy Inc., XEL 0.56%increase; green up pointing triangle, reduced the amount of coal it burnt in favor of the alternative fuel.
Robert Kenney, president of Xcel Energy's Colorado division, said, "Given the fact that we were witnessing delays and shortages in the delivery of coal, we made the smart decision that we would utilize less coal so that we could store that in anticipation of the winter heating season."
But a great deal of coal went unburned during the warm winter. According to EIA data, during December and January, U.S. inventories increased by 4.6% during a season of the year when they usually decrease.
Utility companies rushed to order as much coal as they could, much of it due to be delivered this year and potentially causing a surplus, according to analysts.
For many years, coal was the main fuel used to produce energy in the United States. However, since 2010, the amount of coal-fired electricity generated in the United States has decreased by more than 36% due to worries about pollution and the surplus of gas brought on by the shale-drilling boom. According to the EIA, power plant owners intend to retire an additional 4.5% of their coal-fired capacity this year.
Financing for speculative production has decreased along with the reduction in coal-burning capacity. Nowadays, miners sell the majority of their produce in advance, leaving them with little more to sell if demand is higher than anticipated.
Investors have been informed by major mining corporations that they are largely sold out through 2023. According to Mr. Blumenfeld of McCloskey, it's probable that power generators overbought and will try to offload their coal in export markets or renegotiate contracts with their suppliers, which might push prices lower.
He claimed that even though it is no longer profitable, some utilities are already burning coal to make room for incoming cargoes.