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Most U.S. Coal Is Uneconomical as Natural Gas Fattens Profits

Coal is getting pummeled by natural gas as power generators find they make more money using the cleaner-burning fuel.

Some 90 percent of U.S. coal was uneconomical as a power-plant fuel after natural gas dropped near a three-year low this year, said Mark Levin, an analyst at BB&T Capital Markets in Richmond, Virginia. Coal’s share of the electricity market will fall to 36 percent in 2015 from about 50 percent in 2007, government estimates show.

This year was already set up to be a rough one for coal. The U.S. Environmental Protection Agency’s Mercury and Air Toxics Standards, or MATS, limiting emissions of toxins from power plants, kicked in Thursday. The remaining coal plants face competition from a flood of cheap gas. On a spot basis, a power plant burning gas can make about $27 per megawatt hour, $10 more than coal units, data compiled by Bloomberg show.

“Based on current prices, about 90 percent of U.S. coal production doesn’t make sense against gas,” Levin said in a telephone interview Thursday. “It’s about as bad as it’s ever been.”

The MATS regulation will force about 7 percent of America’s coal-fired capacity to shut this year, according to a Bloomberg New Energy Finance report.

Natural gas has fallen 7.4 percent in 2015 year on the New York Mercantile Exchange and closed at $2.511 per million British thermal units April 10, the lowest since June 2012.

By comparison, benchmark Appalachia coal has increased 2.4 percent this year on the exchange.
Wyoming Coal

The only coal that makes sense for generators to burn is from a mine near a power plant or the cheapest varieties from Wyoming’s Powder River Basin, Levin said.

Consumption is so weak for coal that it’s causing supply to pile up.

“You see it in the burn figures, and you’re starting to see it in the railroads,” Lucas Pipes, an analyst at Brean Capital LLC in New York, said in a telephone interview Thursday.

CSX Corp., the largest railroad in the eastern U.S., said Wednesday that among the utilities it serves, coal stockpiles in the northern region were high enough in March to last 85 days, while there were 180 days of supply in the Southern region. Normal levels are near 65 days.

“The natural gas prices have rendered a lot of coal uneconomical,” Levin said. “It’s an ugly, ugly picture at the moment.”

source: http://www.bloomberg.com