Coal news and updates

US Electricity Generation Fell Again in Week Ended October 23

US electricity generation

The EEI (Edison Electric Institute) publishes electricity generation data weekly. The current report is for the week ended October 23, 2015. US electricity generation dropped to 69.4 million mWh (megawatt hours) that week, a decrease of 3.1% over the previous week’s 71.7 million mWh.

However, the week’s electricity generation was higher than the 68.7 million MWh reported during the same week in 2014.

Why is this indicator important?

More than 90% of the coal produced in the United States is used for electricity generation. The power utility segment is coal’s largest end user. As a result, coal and utility investors should watch electricity generation trends.

Electricity storage is expensive, so most produced electricity is consumed right away. As a result, electricity generation mirrors consumption.
What does this mean for coal producers?

Thermal coal is used mainly for electricity generation. Everything else being equal, a rise in electricity generation is positive for coal producers (KOL) such as Peabody Energy (BTU) and Cloud Peak Energy (CLD). However, coal is losing market share to natural gas in the current low natural gas price environment.

Weekly generation levels are subject to seasonal deviations. The impact on utilities (XLU) such as NextEra Energy (NEE) and Southern Company (SO) depends on the regional breakdown of electricity generation.

Why is this indicator important?

Every week, the EIA publishes shipment data based on coal railcar loadings. Coal is an important commodity for railroad companies such as Union Pacific (UNP) and CSX (CSX). However, coal’s importance in freight is falling due to the emergence of shale oil. It’s also falling due to competition from other commodities and the propensity of utilities (XLU) to stock coal. We looked at the relationship between crude oil and coal in Part 3.

More importantly, coal producers mine coal on demand, so coal shipments mirror production over the long term. A sustained rise or fall in coal shipments over a few weeks compared to the previous year is a significant indicator for coal producers (KOL) such as Peabody Energy (BTU), Alliance Resource Partners (ARLP), Arch Coal (ACI), and Cloud Peak Energy (CLD).

However, there can be some deviations in the short term. Shipments are a function of demand and other factors like rail availability and competition from other commodities. So weekly coal shipment data can be misleading. Apart from genuine demand-side issues, factors such as rail cars not being available, bad weather, and supply issues can distort the data.