Coal production rebound, lower prices edge out gas in central US generation stack

Coal is outcompeting natural gas generation in independent system operator territories across the central US in 2022 as a rebound in production and a drop in prices make the fuel more competitive.

The recent uptrend for coal has been most clearly apparent in the Midcontinent Independent System Operator where the fuel has captured about 37% of total generation share since the start of January – a nearly six-percentage point gain from December, data from the ISO shows.

Over the same two-month period, market share for gas has remained roughly unchanged at about 30% as coal picks up the slack for lower nuclear and wind output in MISO since the start of the new year.

Since the late autumn months, though, generation share for natural gas in MISO has waned, falling about two percentage points since October and November as generators look for cheaper options.

MISO isn't the only ISO where coal generation is rising. A similar trend is underway in the Southwest Power Pool where coal has captured much of the upside from a steep drop in wind generation in 2022.

Recent momentum for coal-fired generation comes as stronger production and lower prices this year have recently given the fuel a renewed edge in the generation stack. In the fourth quarter of 2021, market share for coal went into retreat, likely fueled in part by supply constraints and high prices.

Production, prices

Since the start of 2022, coal production has jumped. In mid-January, US weekly output briefly topped 11.9 million st rebounding sharply from a new-year decline to just 9.75 million st earlier in the month.

While the new-year decline and subsequent rebound in coal production appears to be a historical trend, this January's production rebound has lifted output above the fourth-quarter 2021 weekly average at just 11.25 million st, data from the US Energy Information Administration shows.

If sustained, the recent gain in weekly production of about 500,000 to 600,000 st over its Q4 level could further ease coal prices, potentially giving the fuel additional upside over gas in the generation stack.

Already since the start of 2022, Central Appalachian coal prices have fallen to about $90.50/st – down from a 13-year high in the fourth quarter when prices averaged over $95/st, S&P Global Platts data shows.

Gas burn

Despite the recent gains for coal-fired power in the Midwest, gas-fired power burns in MISO have been exceptionally strong this winter, consistently outperforming the prior three-year average.

From Nov. 1 to date, power burn in MISO has averaged over 3.5 Bcf/d – about 15%, or almost 500 MMcf/d, above the three-year average. Compared to last winter, burns are up more than 550 MMcf/d.

Surprising strength for gas-fired power burn in MISO, despite the recent ascendency of coal, comes as coal plants across the Midcontinent continued to retire last year – another factor that may have limited coal capacity during the late autumn months. In just the past 10 months, some 13 coal units in MISO have been retired, taking offline an estimated 1,375 MW across the ISO's footprint.