After three years of holding relatively steady, US coal production will resume its longer-term trend of secular decline in November, according to federal projections.

US coal production peaked in 2008 and began a rapid decline that accelerated in 2015 and 2016 following national regulations on mercury emissions, and again in 2020 when the COVID-19 pandemic weighed down demand. However, after hitting a bottom of about 535 million short tons of annual production in 2020, producers have since mined more coal each year.

The US Energy Information Administration forecast in its October Short-Term Energy Outlook that total annual coal production will fall 2.7% in 2023 compared with the prior year, a trend that will accelerate in 2024 as production dives 20.0% year over year, from an estimated 581 MMst in 2023 to about 465 MMst. The 2024 total is about 13.1% below the industry's modern low set in 2020.

"I just don't see a pathway to coal generation being a material part of the generation mix in the next decade and beyond," Morningstar analyst Travis Miller told S&P Global Commodity Insights. "There is too much growth in renewable energy. Nuclear economics appear to be stable now with some of the tax incentives, and gas is just such a valuable generation fuel source that the US is never going to be replacing gas with coal."

Low oil and gas prices rough for coal

Coal production has largely been stable in part due to an energy crisis in Europe following Russia's invasion of Ukraine in February 2022. Natural gas prices rose in the days after the invasion, with the Henry Hub natural gas spot price averaging $4.38/MMBtu in January but climbing as high as $8.81/MMBtu by August 2022, according to the EIA. That made coal more economically viable for a while, said Steve Piper, director of energy research for Commodity Insights. While the market was reacting to geopolitical events, some coal contracts secured in 2022 or earlier continue to support deliveries in 2023.

However, oil demand is high once again, and natural gas, often produced as a coproduct with oil, is plentiful. Decreasing natural gas prices, which went down to a monthly average of $2.64/MMBtu in September, have put pressure on coal prices, allowing coal power plants to buy fuel at a discount.

"Inventories have been building up at US coal plants. The inventory levels are sky high, especially considering how much coal generation has been decommissioned over the past two years and how much is anticipated and announced for decommissioning over the next couple of years," Piper said. "There's really nowhere for [coal] production to go but down for the foreseeable future."

In recent years, coal plants have increased the average days of burn kept onsite, giving them a buffer in the event of a sharp increase in demand. Between 2010 and 2018, bituminous and subbituminous coal-burning plants had a combined monthly average of less than 76 days of burn, and inventories built up to a monthly average of 105 days in 2019 and through August 2023.

But in August, the latest data available, coal power plant owners built up massive supplies: The number of days of burn at US electric power plant stockpiles averaged 147 days at bituminous plants and 148 days at subbituminous plants, according to EIA data.

Mild weather bodes poorly

Cold winters typically boost coal sales as customers crank up the heat to stay comfortable. But the effects of global warming will be exacerbated by El Nino conditions for the winter of 2023-2024, leading to warmer-than-average temperatures. November, December and January have increased odds for above-normal seasonal mean temperatures in Alaska, the Western US, the northern tier of the contiguous US, the Ohio Valley and the mid-Atlantic, according to an Oct. 19 forecast from the National Weather Service.

"Utilities could throttle back [coal purchases] a lot next year, especially if this winter comes in mild," Piper said.

Policy problems

However, warmer winters are far from the only factor weighing down the future of US coal. The rapidly dropping prices of solar and wind power, along with the batteries that smooth their output, have put coal on its back foot. New policies aimed at boosting zero-carbon generation will only make life harder for coal miners.

Commodity Insights' coal demand forecast shows relatively flat demand through 2024 before a steady decline extending through the rest of the decade. Overall, domestic demand for coal and exports will decline by about 153 MMst combined, or 25.3%, between 2022 and 2027, according to the October forecast.

Morningstar's Miller has an even more grim outlook for US coal in power markets. While it does not include production volume figures, the firm's October outlook has coal falling to less than 4% of total US power generation by 2032 due to an acceleration of "yet-to-be-announced plant closures."

"I think coal retirements will be part of state policy agendas," Miller said. "To the extent the supply of solar and wind is going up to meet these policy standards, some generation source has to fall out."

The Inflation Reduction Act enacted in August 2022 is accelerating the retirement of US coal-fired power plants in favor of zero-carbon electricity resources. For example, a $9.7 billion program, Empowering Rural America, or New ERA, helps member-owned rural electric cooperatives transition to low-carbon energy. More than 50% of the letters of interest sought clean energy projects that would serve distressed, disadvantaged, coal and power plant or Tribal communities. Moving away from coal and other fossil fuel resources can be tricky in such areas, particularly those that depend on conventional energy companies for employment. The New ERA program lowers the risk of new technology investments for rural co-ops.

However, the US Department of Agriculture announced in late September that there was high demand for the program, with 157 proposals pouring in from "nearly every state and Puerto Rico for more than 750 clean energy projects in rural communities."

Utilities already have the energy technologies to replace existing coal plants, and the Inflation Reduction Act gives them the financial support to move beyond unabated coal generation, said Mike O'Boyle, senior director of electricity at Energy Innovation Policy and Technology LLC, a nonpartisan energy research group. The group published a report earlier this year about how the Inflation Reduction Act has shifted the economics of power generation.

"But the Inflation Reduction Act, it's all carrots, right? It's all incentives, voluntary programs, tax credits, et cetera," O'Boyle said. "It is still important to consider the role of standards — pollution standards, for example — from the Environmental Protection Agency that will also drive utilities to make decisions about the future of fossil generation. The Inflation Reduction Act gives them everything they would need, but that doesn't mean all utilities will go for it."

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