U.S. thermal coal producers watched their domestic customer base shrink in 2020 as utilities continued to announce coal-fired power plant closures and transition to less expensive renewable and natural gas sources.
Companies delivered about 33.4% of the total coal produced last year in the U.S. to power plants already slated for retirement, an increase in the volume and proportion of coal destined for retiring plants compared with 2019, according to an S&P Global Market Intelligence analysis.
Customers from power plants with an announced retirement date between 2021 and 2042 purchased 178.5 million tons of coal last year, out of the approximately 534.7 Mt of coal mined across nine coal basins in the U.S.
In comparison, about 174.3 Mt, or roughly 25%, of coal produced in the U.S. in 2019 went to power plants with planned retirement dates.
The announced coal plant retirements assessed by Market Intelligence are scheduled to take place over the next 21 years.
Approximately two-thirds of the coal shipped in 2020 to plants carrying future retirement dates went to facilities closing by 2030, a sign of just how severe the fallout from the energy transition could be for some U.S. thermal coal producers if they fail to identify new revenue streams.
"Coal retirements create a ceiling on domestic steam coal demand, with still more retirements contemplated by utilities and merchant owners of coal," Steve Piper, director of energy research at Market Intelligence, said in an Aug. 9 report on coal.
Power generators have gradually turned to natural gas and renewable energy sources to save ratepayers money and in response to added pressure to prioritize environmental, social and governance issues.
"The acceleration of renewables and natural gas adoption will undermine thermal coal demand, placing pressure on thermal coal operators to consolidate, reduce output and exit the industry," Fitch Solutions stated in a July 14 metals and mining outlook.
Power provider NextEra Energy Inc.'s subsidiary Florida Power & Light Co. has made a commitment to slash all coal from its energy portfolio. NextEra's CFO Rebecca Kujawa provided an update on the company's progress during a July 23 earnings call: "In June, [Florida Power & Light] demolished its last coal-fired plant in Florida, with plans to replace it with more clean, emissions-free solar energy facilities."
"We are excited to be able to continue supporting the industry's transition away from old inefficient forms of generation into clean, reliable and low-cost renewables and storage," Kujawa added.
Regional variance
Of the nine coal basins analyzed by Market Intelligence, the Four Corners basin sent the largest proportion, 88.6%, of its 2020 coal to plants with announced retirement dates. Uinta Basin delivered 77.5% of the coal produced in 2020 to retiring plants.
Last year, the largest coal company by volume in the U.S., Peabody Energy Corp., delivered 5.6 million tons of coal from its Bear Run mine to plants with planned retirement dates between 2021 and 2042, along with 509,370 tons of coal from its Somerville Central mine. Both operations are located in Indiana.
Some coal companies, including Peabody Energy, have been working to diversify revenue streams or access seaborne thermal markets for additional customers. Headquartered in Missouri, the company produces both thermal and metallurgical coal in the U.S. and Australia. President and CEO Jim Grech said during a July 29 earnings call that Peabody Energy intends to take advantage of the revival in coal demand worldwide on the back of the economic recovery from COVID-19 this year, but the company continues to "see the seaborne thermal market as a good market to be in."
Domestic thermal coal producers could benefit from a resurgence in demand for coal in 2021, thanks to higher natural gas prices.
"Higher demand [for coal] is all but assured for the rest of 2021," Market Intelligence's Piper said in the Aug. 9 report.
But the demand boost and rebound in coal production this year will likely not be sustained in the long term.
"After 2022, announced coal retirements combined with declining natural gas prices are projected to push coal generation demand gradually lower through 2030," Piper said.