- Sascha Schuermann/Getty Images
The US’s biggest source of power for everything from your light bulbs to television has finally been unseated, and it may be a sign of things to come.
As suggested by numerous industry signals, coal as a source of energy may be slowly dying.
According to the Energy Information Agency, the US government’s energy-tracking department, 2016 will be the first year coal is not the dominant source of power generation for the US since tracking began in 1950.
“For decades, coal has been the dominant energy source for generating electricity in the United States,” a report from the agency said.
“[The EIA] is now forecasting that 2016 will be the first year that natural-gas-fired generation exceeds coal generation in the United States on an annual basis.”
- Energy Information Administration
A prime example of this stress was the bankruptcy announcement Wednesday of the world’s second-largest coal miner, Peabody Energy.
There are two reasons for this, according to the EIA: costs of alternatives and environmental concerns.
The first was highlighted by the railroad giant CSX in its quarterly earnings call on Tuesday. The company announced that shipments of coal, which remains the most common product shipped by rail in the US, dropped by 31% in the first quarter from the same period last year.
Most of this is due to the price of natural gas, CSX CFO Frank Lonegro said, which is being used more and more by energy providers as its cost has gone down.
“Domestic coal will continue to be unfavorably impacted by low natural-gas prices, currently around $2.00, and high levels of coal inventory at the utilities,” Lonegro said.
“As a result, we expected second-quarter tonnage to be around 18 million tons. In addition, we anticipate a similar quarterly run rate for the second half, recognizing domestic coal volume will be largely dependent on weather.”
- Association of American Railroads
Or as the EIA puts it:
Between 2000 and 2008, coal was significantly less expensive than natural gas, and coal supplied about 50% of total U.S. generation. However, beginning in 2009, the gap between coal and natural gas prices narrowed, as large amounts of natural gas produced from shale formations changed the balance between supply and demand in U.S. natural gas markets.
CSX CMO Fredrik Eliasson echoed similar sentiments.
“And so, clearly, based on where natural-gas prices are right now, there’s an economic interest in diverting a lot of the utility plants away from coal, towards natural gas, and in some instances like you pointed out to also to nuclear,” Eliasson said on the call.
The railroad company’s coal revenues have fallen by $1.4 billion in the past four years, and the company is expecting them to drop by another $500 million this year.
This doesn’t take into account the growth of other alternatives, such as solar power and other renewable sources, which according to BP’s 2016 energy outlook could increase as a primary energy source sixfold over the next 20 years.
At the same time, the EIA and CSX also point to significant curtailing of coal production because of environmental regulations of the product.
“Environmental regulations affecting power plants have played a secondary role in driving coal’s declining generation share over the past decade, although plant owners in some states have made investments to shift generation toward natural gas at least partly for environmental reasons,” the EIA report said. “Looking forward, environmental regulations may play a larger role in conjunction with market forces.”
- Getty Images/Kevin Frayer
A new law on carbon emissions will take effect in 2022, seriously affecting coal, Eliasson said.
“There are opportunities to see some pickup at some point, but there’s no doubt that the trend on the utilities side is downward going forward,” he said. “But I don’t think it’s anywhere close to the pace that we’ve seen here over the last four to five years.”
“But, of course, also looking at the direct impact of the regulation that is going to kick in here potentially as we get into 2020 and beyond.”
In addition, regulations coming out of 2015’s COP21 world climate change meeting in Paris may also affect coal use.
Combining these two factors – alternatives and regulation – coal will see a precipitous decline over the coming years.
“Coal demand is projected to fall by more than 50% in both the US and OECD Europe, driven by plentiful supplies of gas, the falling cost of renewables, and stronger environmental regulation,” the BP report said, also including another startling prediction.
“By 2035 coal accounts for less than 25% of primary energy, its lowest share since the industrial revolution.”
So in sum, it seems that we may be seeing the end of coal as we know it in the US.