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Market Forces
Old King Coal Won’t Retake His Throne

American coal use last month saw a record year-over-year increase, according to one of the industry’s key metrics. This will undoubtedly read by some as evidence of President Trump following through on his campaign promise to revive the struggling coal industry, but the fossil fuel’s stellar February was the result of market economics, not federal policy. Reuters reports:

The Association of American Railroads (AAR) said on Wednesday that the number of rail cars loaded with coal in February increased over 19 percent compared with the same month in 2016, the biggest percentage gain on record, according to AAR data to 1988. […]

Gas prices rose in late December, and analysts have been predicting an improved outlook for 2017 for coal, as higher gas prices make coal the cheaper fuel for some power generators, according to analysts and government studies.

There are a few things to parse here. First, coal sales rose because the its chief competitor—natural gas—got more expensive. So while the coal industry heralded the Trump presidency as “a great day for coal miners and their families,” the president can’t take credit for this bounce.

Second, this was only an historic moment on relative terms. AAR Senior vice president of policy and economics John Gray explained to Reuters that “[while] it’s an impressive gain, February 2017 was, unfortunately, also the second worst February in absolute terms for coal since sometime before 1988.” In other words, coal couldn’t have risen so much last month if it hadn’t fallen so far in recent years.

Finally, let’s acknowledge that it was cheap shale gas that knocked coal off of its perch as America’s go-to source for power generation, not overregulation by President Obama. Trump is going to try to roll back regulations on the coal industry to make it easier for these companies to compete with upstart shale producers, but he’s not going to hamstring our fracking revolution to save coal country. To the extent that reduced regulations help boost coal firms’ bottom lines, we can also expect similar gains for tight oil and shale gas companies.

Donald Trump won’t be able to revive coal because that sooty rock is going up against what is perhaps the most dynamic energy juggernaut in the world today: the shale boom. Natural gas prices have dropped 30 percent over the past three months as burgeoning domestic supplies continue to flood the American energy marketplace. Coal may have had a good February, but its longer term outlook hasn’t gotten any better.

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  • KremlinKryptonite

    Coal might never regain its lost market share of power, but coal is also used in the process to make steel, glassware, and many other things. If those industries grow then so does the need for coal.
    Maintaining mineral rights for property owners (which have been under threat by Obama) and eliminating needless and ineffective regulation that hampers all mining (including all base metals, precious metals, minerals like talc, and so on) is the broader, more important thing that the Trump administration is doing.

    • CaliforniaStark

      I predict that within a decade that new technology will be developed that will allow coal to be gasified in the ground. It will in effect, make coal into what amounts to synthetic natural gas; and this new technology will resolve many of the issue regarding the pollution associated with coal. In effect, new coal technology will become a new form of fracking.

      https://www.netl.doe.gov/research/Coal/energy-systems/gasification/gasifipedia/underground

      http://breakingenergy.com/2014/11/06/underground-coal-gasification-gets-new-start-in-usav/

      Many decades ago, when I was a college student living in Utah, was a strong opponent of the proposed Kaiparowits Plateau coal-fired power plant in central Utah. The power plant was intended to provide power to rich and trendy Southern California. After hearings in southern Utah on the project, remember having to check the tires of my VW automobile to make sure razor blades had not been placed in them. At the time, as a typical college student, had assumed all issues were black and white – and was on the side of the angels in opposing the proposed coal plant.

      As time went on, realized the issues involving coal plants were more complex. Coal was a vital part of the economy of many western states; particularly of the Navajo reservation in the Four Corners region, Also, the hypocrisy of California claiming it was moving to renewable energy, while remaining heavy reliant on coal and natural gas got old quick. It is time to end the hypocrisy, and move towards methods of mining and processing coal in a manner that limit pollutants, and takes advantage of the new technologies that have resulted from fracking. Gasification of coal is a major step in this direction.

      • Suzy Dixon

        You mean like coal gas which was used for heating and lighting back in the day?
        But yeah, literally thousands of products come from coal, including that needed for water and air purifiers ironically.
        When someone says “we need to stop using coal!” You can write them off. They don’t know what planet they are on.

  • Pait

    Perhaps the current government won’t curtail fracking to save coal, but it is very likely to tax and otherwise impede solar and wind operations for whatever random reason it may come up with.

    • Fred

      It doesn’t have to tax solar and wind operations to impede them. All it has to do is eliminate their subsidies.

      • Pait

        Actually, subsidies to oil and gas operations are much larger, if you count all forms of subsidies. Nevertheless, solar and wind have become more competitive than oil and coal, even without tax breaks. (US fracking gas seems to be cheaper.)

        • Jim__L

          Fantasy. Pure green fantasy.

        • Proverbs1618

          What % of subsidies goes to wind and solar vs. what % of power generation is done by these energy sources? That is the question relevant to the discussion. Absolute figures taken out of context are only useful for scumbags to deceive idiots. Surely you are not trying to do that.

          • Pait

            The main subsidies to fossil fuels include:
            1 – Inexpensive access to public lands;
            2 – Expenses borne by the citizens affected by pollution generated at the points of prospection and consumption of the fuel;
            3 – Costs related to the need to deal with changes in the environment caused by burning fossil fuel, which are at present smaller but likely to grow; and
            4 – Military and other geopolitical costs due to the need to defend the global oil infrastructure, and to maintain security of the free world in face of challenges from countries and terrorist organizations ultimately funded by oil revenues.

            In present dollars the latter is by far the largest for US citizens. Essentially all terrorism and geopolitical instability in the world is supported by oil revenues.

            The answer to your question of percentage is “close to infinitesimal.” Even the direct tax subsidies to oil, coal, and gas dwarf the subsidies to renewables. Then there are subsidies to nuclear and to corn alcohol, which are also misdirected – the latter are included under “renewables” is some datasets.

          • Proverbs1618

            Ahhh, the externalities. Something that, conveniently enough, can’t be quantified.

          • Pait

            YOU cannot quantify it. That doesn’t make them any smaller, or less real.

            As an exercise, start with the easier one: how much of US military expenses are related to oil-supported rogue regimes, or to the need of defending oil supplies? It is surely more than the whole revenue of the oil & gas industry.

          • SLEcoman

            A fairer comparison is to look at the net government revenue (i.e. taxes minus subsidies) on a per energy unit basis (e.g. $/MMBtu) for the end consumer. It is hard to believe that oil doesn’t produce huge net revenues for government (i.e. federal, state, and local) entities when all taxes are included when one considers that just federal and state gasoline taxes alone account for 30-40% of the retail price of gasoline, and oil companies pay many other taxes including federal and states income tax, federal royalties, state severance taxes, property taxes, and many other taxes and fees. On the other hand, the analysis I have seen indicates that wind power generation produces net negative government revenue (i.e. subsidies exceed tax revenues).

          • Pait

            Federal gas tax is $.184. Average state tax $.31, total less than $.50, which is a little over 20% of yesterday’s average gas price of $2.30.

            I will regard the rest of your argument as being written with the same level of truth.

          • SLEcoman

            You are correct that the percentage is too high. I calculated the percentages based on the wholesale RBOB price of gasoline (currently $1.65/gal on the NYMEX), then incorrectly stated the percentage as % of the retail price of gasoline. I would point out that state sales taxes vary widely. The lowest state sales tax is Alaska’s 12.25 cpg and the highest is Pennsylvania’s 50.5 cpg. In hindsight, I should have stated that federal and state highway taxes alone add 30-40% to the wholesale price of gasoline.

          • Pait

            If you had said so, perhaps it would not have caught my attention, because the number would not have been so implausible, so perhaps you should’ve had.

            It would still be incorrect, as $.49 adds only 27% to the pre-tax price of $2.30-$.49. Oh well. Why don’t we just say you won the argument and bury all those inconvenient numbers?

          • SLEcoman

            Pre-tax price is not the wholesale price of RBOB (i.e. gasoline produced from oil). Other costs included in the retail price of gasoline are: cost of blending in ethanol, transportation cost from wholesale truck rack to retail gas station, retail gas station cost of operations and profit margin, and sales tax. Ethanol prices are highly location dependent because the vast majority of pipelines will not accept ethanol, either straight or blended with gasoline, because it greatly accelerates pipeline corrosion.

          • Pait

            I suppose one can always argue that 50 cents is 40% of something, or that pipeline corrosion is a form of tax, or that it will go away if the government muzzles scientists who study climate change, or something.

            That’s why I suggested we just declare you won the social media argument and forget about the number thingy. Those numbers have a well-know neoliberal bias anyway.

        • Fred

          Nevertheless, solar and wind have become more competitive than oil and coal, even without tax breaks

          Is that why the Germans have some of the highest utility bills in Europe and have been forced to burn more coal since attempting to substitute renewables for nuclear energy?

          • Pait

            German industry has been doing fairly well these days, so, perhaps, who knows? 😉

  • rheddles

    Finally, let’s acknowledge that it was cheap shale gas that knocked coal off of its perch as America’s go-to source for power generation, not overregulation by President Obama.

    Let’s not until there is some evidence. I’ll bet Obama didn’t know what fracking was when he threatened to bankrupt the coal industry in 2008. Coal is in a decline, to be sure. But it was Obama that pushed it over a cliff. Shale could only have rolled it down a hill.

  • Kenneth Currie

    Once again demonstrating the importance of fungibility of energy sources . . .

    • SLEcoman

      Natural resources have limited fungibility. For example, steel is not a fungible replacement for aluminum in airplanes. Coal is not a fungible replacement for natural gas because even pulverized coal cannot even fit through the fuel nozzles of a modern natural gas combined cycle electric generating unit (EGU) without even taking into account the almost immediate destruction of the gas turbine internals by coal particles and coal ash.

  • SLEcoman

    To say that over-regulation did not have a part in coal’s reduced market share is delusional. Did you not see headline after headline about coal-fired power plants closing due to the EPA’s Mercury Air Toxic Rule (MATS)? At least 60,000 MW of coal-fired generating capacity was closed as a result of the rule. And let’s not pretend that MATS provided any measurable health benefit to society (see “Mercury Madness: Toxic Analysis and Double Standards”, Journal of American Physicians and Surgeons Volume 20 Number 2, August 2015). Almost certainly these older power plants would not be running when natural gas prices are very low but they very possibly would have been running when natural gas prices are higher (e.g. December 2016). Thus, the Obama administration’s anti-coal regulatory agenda limited the amount of coal-fired power generation that can be achieved when natural gas prices are high. Thus, absent these anti-coal rules, coal-fired power generation’s market share would probably have been higher than its 34.4% market share in December 2016.

    This article also assumes that present natural gas prices are sustainable. Monthly YoY natural gas production (e.g. June 2016 vs June 2015) has been been lower for 8 successive months starting in June 2016 (Feb 2017 data not yet available). Meanwhile, It is clear the US EIA has reevaluated its price versus production relationship for US natural gas as the agency is now (i.e. STEO released February 7) projecting 16% higher natural gas prices than in its October 6 forecast ($3.54/MMBtu vs. $3.16/MMBtu) to achieve a 3.4% lower production level (73.68 Bcf/day vs. 76.23 Bcf/day).

    I would point out that coal-fired power generation begins to regain market share when Henry Hub prices exceed ~$3.00/MMBtu (~$18/boe). The EIA’s last long-term natural gas forecast predicted five widely varying natural gas prices for 2030 ranging from $2/MMBtu to $10/MMBtu. The mid-range price forecast was a Henry Hub price of $6/MMBtu ($36/boe). Absent CO2 emission regulations, coal-fired power absolutely dominates natural gas fired power generation when natural gas prices are $6/MMBtu.

  • FriendlyGoat

    If some regulations are eased, which coal production goes up the most? Western or Eastern? Is the answer to that even discussed much in Appalachia?

  • Frank Natoli

    Finally, let’s acknowledge that it was cheap shale gas that knocked coal off of its perch as America’s go-to source for power generation, not overregulation by President Obama.
    And how does the author know that? How about the “over-regulation” is removed and we see what the free market then decides?
    Donald Trump won’t be able to revive coal because that sooty rock
    STOP. It is a “sooty rock” when mined not when burned. For decades, electrostatic stack precipitators remove all particulate matter a/k/a soot from coal plant effluent. So why would the author characterize coal as the “sooty rock”? Answer: because the author has an agenda which the facts would interfere with.

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