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Coal demand rises as global energy crisis strains natural gas supplies

October 12, 2021

Despite the global efforts to move away from fossil fuels coal consumption is on an uptick in response to surging natural gas prices and a global energy crisis that is forcing countries to return to the more reliable fuels like coal.

“The markets have spoken,” said Rich Nolan, chief executive officer of the National Mining Association. “We’re seeing the essential nature of coal come roaring back.”

Bloomberg reported that U.S. power plants are on track to burn 23 percent more coal this year, the first increase since 2013, despite ambitious plan to eliminate carbon emissions from the power grid. The rebound comes after consumption by utilities plunged 36 percent under President Donald Trump, who slashed environmental regulations in an unsuccessful effort to boost the fuel.

The increase in coal consumption could be problematic for the Biden administration which plans to meet other world leaders in Scotland in a few weeks, hoping to reach a deal on curbing fossil fuels. However, the boom is being driven by surging natural gas prices and a global energy crisis that’s forcing countries to burn dirtier fuels to keep up with demand. It’s also a stark reminder that government policy can steer energy markets, but it can’t control them.

In 2021, the U.S. utilities are poised to burn 536.9 million short tons of coal, up from 436.5 million in 2020, the Energy Information Administration forecasts.

Coal from the central Appalachia region has climbed 39 percent since the start of the year to $75.50 a ton, the highest since May 2019. Prices in other regions are lower, but also on the rise.

Demand for coal will likely remain strong into next year, said Ernie Thrasher, CEO of Xcoal Energy & Resources, the biggest U.S. exporter of the fuel. Supply is already constrained, and Thrasher said he’s hearing some utilities express concern that they may face fuel shortages over the next several months as colder weather pushes energy demand higher to heat homes.

“It won’t be easy this winter,” he said.

Kevin Book, managing director of research firm ClearView Energy Partners, said the current crisis has added fodder to the debate over efforts to move away from coal.

“The goal of policy, if you listen to what’s being said in Western countries in the context of climate discussions, is not only to stop building new coal but to eliminate the existing capacity to burn coal,” Book said. “This is a moment in time when that idea is going to be challenged.”

As the world emerges from the coronavirus pandemic, reopening economies are driving a huge rebound for power demand. But natural gas is in short supply, creating shortfalls at a time when wind and hydro have been unreliable in some regions. Europe and Asia have been hit the worst, with skyrocketing markets, blackouts in places like India, power shortages in China and the threat of outages in other countries. Energy prices are also soaring in the U.S., though not to the same extremes.

The situation is driving up coal demand around the world, and in the U.S., utilities are cranking up aging power plants and miners are digging up as much as they can.

The shift means that coal will supply about 24 percent of U.S. electricity this year, after falling to 20 percent in 2020, an historic low after years of efforts to push utilities toward clean power and amid cheap natural gas supplies. That resurgence may look even more extreme when the Energy Department releases its latest monthly report Wednesday.

 

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