US coal prices top $200 as global energy desperation intensifies ahead of winter
Coal prices in the United States topped $200 a ton last week, according to new data from the Energy Information Administration (EIA).
Spot coal prices in central Appalachia climbed to $204.95 a ton for the week ended Sept. 30, up more than 3% from the previous week. This price is the highest since 2005.
Newcastle coal futures, the benchmark for Asia, hit a record high of nearly $450 a tonne. before dropping to around $400.
National coal production remained stable. EIA figures show U.S. coal production totaled 12.1 million short tons, up 1.9% year-over-year. In addition, year-to-date coal production totaled nearly 438 million short tons, up nearly 4% from the same period a year ago. (A short ton, or just a ton in the United States, equals 2,000 pounds. A long ton, used in Britain, equals 2,240 pounds.)
In 2021, coal accounted for more than one-fifth (22%) of electricity generation in the United States, behind natural gas (38.3%). By comparison, wind and solar accounted for only 9.2% and 2.8%, respectively, last year.
But the source of fuel has increased due to stronger global demand, especially as the northern hemisphere braces for cold temperatures and snowy weather.
Global energy demand crisis
Data from S&P Global revealed that total spot trading volumes rose 22% in the third quarter, up from the April-June period.
In July, the International Energy Agency (IEA) forecast in a market update that global coal consumption would return to historic highs in 2022.
“Global coal demand is supported this year by higher natural gas prices, which have intensified the shift from gas to coal in many countries, as well as economic growth in India. These factors are partly offset by slowing economic growth in China and the inability of some large coal producers to increase production,” the IEA said in its report.
Indeed, Chinese coal imports were subdued, falling around 15% year-on-year in August. Beijing’s zero COVID strategy has led to lockdowns in multiple pockets of the country, which has weakened economic growth and put pressure on demand for a wide range of commodities, from soybeans to crude oil to coal. .
However, this was offset by robust European demand. In the first half of 2022, coal was the main source of energy production in Germany, accounting for almost 30%, according to confirmed data from the Institute for Energy Research (IER). This is due to the European Union (EU) ban on Russian coal imports, forcing eurozone members to look for alternative sources. Moscow had supplied around 70% of the EU’s thermal coal before the restrictions. In the first seven months of 2022, Australia exported 2.9 million metric tonnes of coal to Europe, up 73% from the whole of 2021.
European demand for marine thermal coal is also expected to increase by 14%, or 12 million metric tons, in 2022.
“As many European countries increasingly use thermal coal, an additional nine gigawatts (GW) of coal-fired capacity has been made available to meet energy demand and offset the decline in Russian energy imports. Coal prices are rising, but they are still more affordable than record gas prices,” Wood Mackenzie senior research analyst Adam Woods wrote in a recent research note.
It’s not just European households that are struggling. The National Energy Assistance Directors Association has warned that more than 20 million American households are behind on their utility bills. The organization also estimated that the average cost of home heating during the winter season will increase by more than 17%, to $1,202, the highest in a decade (pdf).
Electricity costs jumped nearly 16% on an annualized basis in August, according to the Bureau of Labor Statistics (BLS).
The situation could worsen as coal producing companies have operated at near maximum capacity without the infrastructure to scale up production. Moreover, supply chain issues could prevent companies from even expanding production capacity, experts say.
“The growing energy crisis originally created by the underperformance of renewables was exacerbated by the Russian invasion of Ukraine, leading to Russia’s closure of the Nord Stream 1 gas pipeline due to sanctions imposed by the West,” the IER noted last week. “But the high prices are caused by energy shortages, and Europe is looking for enough energy supplies to get through the winter.”
According to Fitch Solutions, coal prices are expected to fall next year and into 2024.
As businesses and households struggle financially, coal inventories are climbing thanks to rising prices. Peabody Energy, for example, shares jumped more than 3% on Wednesday to over $27, taking its year-to-date gain to nearly 139%. Arch Resources rose about 2% to $138 mid-week, taking its year-to-date rise to more than 50%.