Responding to increased coal demand in the electric power industry, U.S. coal production rose to a record high of 1,118.7 million short tons in 1998, a 2.6-percent increase from the 1997 production level, according to preliminary data from the Energy Information Administration (Table 1). The electric power industry (utilities and independent power producers)--the dominant coal consumer--used a record 941.6 million short tons, 2.1 percent higher than in 1997. The increase in coal use for electricity generation was attributable primarily to a decline in hydroelectric generation. Growth in electricity demand was also a contributing factor. Coal consumption in the non-electricity sectors (residential/commercial and industrial users) declined by 3.1 percent to 104.0 million short tons.

In 1998, U.S. coal imports rose substantially, by 16.5 percent to 8.7 million short tons, while coal exports dropped by more than 6 million short tons to 77.2 million short tons, continuing the downward trend of the previous year. The decline in 1998 was mostly in metallurgical coal exports, unlike the previous year when lower steam coal exports were responsible for the overall decline in coal exports.

The trend toward reduced levels of consumer coal stocks (in terms of both absolute tonnage and days of supply) was reversed in 1998, with year-end stocks rising to 128.9 million short tons, an increase of 22.5 million short tons from the 1997 level. To some extent, mild fall and winter weather over much of the country moderated the amount of coal burned at electric utilities and pushed up year-end coal stock levels. Even in regions with cold weather, severe storms resulted in some widespread power outages, curtailing coal use. Year-end stocks at electric utilities rose by 22.6 million short tons. Stocks held by producers and distributors, however, remained basically unchanged, at 34.1 million short tons in 1998.

Despite the increase in domestic coal demand in 1998, the price of coal continued the downward trend that started more than a decade ago. On a delivered basis, the average utility coal price (per ton) dropped by 1.8 percent, the price of industrial coal declined marginally, and the price of coal for coke plants fell by about 3.7 percent (almost $2 per ton). The average price of U.S. coal exports, measured in free alongside ship (f.a.s.) value, fell by 1.0 percent, while the price of U.S. coal imports fell by 6.2 percent in 1998.

The U.S. coal industry produced 1,118.7 million short tons in 1998, 28.7 million short tons more than the 1997 production level (Table 2). The increase was confined exclusively to the Western Region, where coal output rose by 8.6 percent. As a result, the Western Region for the first time surpassed Appalachia as the leading coal-producing region in the United States (Figure 1). Coal production in the Appalachian and Interior Regions declined in 1998 (Figure 2).

Demand for western low-sulfur coal, spurred by its low cost and the sulfur emissions reduction requirements of the 1990 Clean Air Act Amendments (CAAA), resumed its rapid growth in 1998 after weak performances in 1996 and 1997. Demand for western coal was also buttressed by a large drop in hydroelectric generation in 1998 in regions west of the Mississippi. By contrast, mild weather and the return to operation of significant amounts of nuclear-powered capacity stifled growth in coal demand for both the Appalachian and Interior Regions.

Appalachian Region

Coal production in the Appalachian Region fell by 1.6 percent from its 1997 level to 460.4 million short tons in 1998. Although utility  coal  consumption  in  many  of the Appalachian coal markets, such as the South Atlantic, Middle Atlantic, and East North Central Census Divisions (Figure 3), increased in 1998, offsetting reduction in metallurgical coal exports and coal consumption at coke plants (traditional markets for Appalachian coal) led to a decline in overall Appalachian coal production.

Pennsylvania was the only State in the region with an increase in coal production in 1998. Pennsylvania coal production reached 81.0 million short tons, a level not seen since 1981. Pennsylvania's producers supplied a large portion of the increased coal needs of Ontario Hydro in 1998. With declines in metallurgical coal exports and coal consumption at coke plants, West Virginia--the largest coal-producing State in the region--showed a coal production decrease of 2.7 million short tons (1.6 percent) in 1998, and coal production in Eastern Kentucky fell by 4.3 million short tons (3.6 percent), offsetting the gains of the previous year.

Interior Region

Overall coal production in the Interior Region decreased by 2.5 million short tons in 1998 to a total of 168.4 million short tons, about the same as the 1995 level. Production in the Illinois Basin (Illinois, Indiana, and Western Kentucky) accounted for more than half the loss, falling from 111.6 million short tons in 1997 to 110.2 million short tons in 1998. Indiana's coal production rose by 1.3 million short tons, while Western Kentucky's coal output declined by 1.3 million short tons. Production in Illinois continued its decline of the past several years, down by 1.4 million short tons to 39.7 million short tons in 1998.

Competition from low-cost gas-fired electricity generation had an adverse effect on lignite production in Texas, which was 0.7 million short tons lower than in 1997. Taking advantage of the low natural gas prices in 1998, electric utilities in Texas increased gas-fired generation by 17.7 percent while reducing overall coal-based generation by 2.3 percent.

In 1998, the Western Region overtook Appalachia as the largest coal-producing region in the United States with 489.9 million short tons produced, up by 8.6 percent over 1997. Growth in coal production in the Western Region was dominated by the low-sulfur Powder River Basin coal fields. Utilities in the midwestern States continued switching to the low-sulfur coals from the Powder River Basin in preparation for the more stringent Phase 2 emission reduction requirements of the CAAA, which go into effect in 2000. Large declines in hydroelectric generation in the Pacific Contiguous and Mountain   Census   Divisions   also  raised  utility  coal consumption in the West. In addition, the coal transportation problems experienced in 1997 by the Union Pacific Railroad were remedied for the most part in 1998, satisfying pent-up utility coal demand. These factors helped boost coal output to record levels in four coal-producing States in the region.

Coal production in Wyoming, by far the largest coal-producing State in the country, rose by 32.5 million short tons (11.5 percent) in 1998. The increase brought Wyoming's production to 314.4 million short tons, 28 percent of the U.S. total and only slightly less than the combined total of the next two largest coal-producing States of West Virginia and Kentucky. Increased shipments to electric utilities in midwestern and eastern States helped push Wyoming's production to a record level.

With strong utility demand in the Mountain Census Division, coal production rose to record highs in 1998 in Colorado (30.2 million short tons, up by 9.9 percent from 1997), Montana (42.8 million short tons, up by 4.5 percent), and New Mexico (28.6 million short tons, up by 5.8 percent).

Not all States shared in the Western Region's production growth, however. Utah registered a decrease of 0.6 million short tons in 1998, hampered in part by export demand in Asia. Arizona's coal output declined by 0.4 million short tons in 1998, and Alaska's output dropped by 0.1 million short tons.

Electricity Generation Sector

National Overview

U.S. coal consumption by all users totaled 1,045.6 million short tons in 1998, a 1.6-percent increase over 1997 (Table 1). This growth came entirely from the electric power industry (Figure 3), as coal consumption in the non-electricity sectors decreased by 3.1 percent. Electric utilities burned 917.6 million short tons and independent power producers 24.0 million short tons, for a total of 941.6 million short tons burned for electricity generation (Figure 4).

Much of the 19.6-million-short-ton increase in coal use for electricity generation can be attributed to replacement power for reduced hydroelectric generation. Nationwide, hydroelectric generation declined by 32 billion kilowatthours (Table 3), equivalent to about 17 million short tons of coal. Almost 70 percent of the decline in hydroelectric generation occurred in the Pacific Contiguous Census Division. The Mountain and West North Central Census Divisions also showed significant declines in hydroelectric generation.

In 1998, retail sales of electricity by U.S. electric utilities increased by 3.4 percent, just under the 3.6-percent growth in the gross domestic product. However, coal use for electricity generation benefitted little from the significant growth in electricity demand because of strong competition from other fuels.

Increases in generation from nuclear power, natural gas, and oil limited growth in utility coal consumption. Nuclear-powered generation rebounded from a poor year in 1997, rising by 7.2 percent. Nine nuclear plants that had been idle during part or all of the previous year came back online. Also, the capacity utilization rate generally rose, resulting in increases in nuclear generation in every Census Division. Gas-fired generation posted strong gains in 1998, growing by 15.9 percent. Also, with oil prices remaining at near record lows, oil-fired generation rose for a third consecutive year, increasing by 42.9 percent in 1998. Overall, coal continued to be the principal energy source for electric power generation in the United States, but its share of utility generation (including the 10 coal-fired plants sold to nonutility power producers during 1998) declined slightly to 56.0 percent in 1998 from 57.3 percent in 1997 (Figure 5).

Utility coal prices continued their steady downward trend in 1998 (Figure 6). Ongoing productivity gains in coal mining and transportation maintained the downward trend. Increased shipments of relatively low-cost western coal and the expiration of high-cost, long-term coal contracts also contributed to the downward trend. The average delivered price of coal to electric utilities declined by 1.8 percent, from $26.16 per short ton in 1997 to $25.70 per short ton in 1998.

Regional Summaries

Electricity generation in the South Atlantic Census Division rose by 7.8 percent in 1998, the largest growth in generation among all the U.S. Census Divisions. The increase was dominated by oil-fired generation, up by 67.4 percent, and nuclear-powered generation, which rose by 11.4 percent. As a result, growth in coal-fired generation was limited to a mere 2.0 percent, increasing utility coal consumption by 2.3 million short tons over the 1997 level.

In the Middle Atlantic Census Division, electricity generation rose by 5.3 percent, largely with a resurgence in nuclear-powered and oil-fired generation. Nuclear generation increased by 7.6 percent (more than 8 billion kilowatthours) in 1998, as four nuclear-fired plants returned to operation. Aided by low oil prices, oil-fired generation increased by 76.4 percent (8 billion kilowatthours). Coal consumption for electricity generation rose by only 0.8 percent (0.5 million short tons) in 1998.

In the New England Census Division, overall utility generation increased by 5.2 percent. One nuclear power plant that had been idle in 1997 resumed operation in 1998, helping to increase generation by 4.3 billion kilowatthours (25.9 percent). Oil-fired generation increased, while both coal- and natural-gas-fired generation dropped considerably in 1998, by 11.6 percent and 15.4 percent, respectively. New England's utility coal consumption declined by 0.9 million short tons in 1998.

The East South Central Census Division, where total electricity generation increased by only 0.2 percent, was one of three Census Divisions that experienced a decline in coal-fired generation in 1998. Coal-fired generation, which represents over two-thirds of the region's generation, declined by 2.3 percent (over 5 billion kilowatthours), more than offsetting the region's significant gains in gas- and oil-fired generation. Coal consumption for electricity generation fell by 0.9 million short tons in the region.

In the East North Central Census Division, total generation rose by 2.4 percent or 12.4 billion kilowatthours in 1998. Nearly 90 percent of the increase in generation came from coal- and gas-fired generation. Coal-fired generation--the predominant method used in the region--rose by 1.4 percent, for an increase of 3.0 million short tons of utility coal consumption, most of which was western coal. Nuclear-powered generation, which had declined significantly in 1997, recovered somewhat in 1998 and contributed to the region's growth in total generation.

Although electricity generation in the West South Central Census Division grew by 5.7 percent in 1998, coal-fired generation in the region fell by 2.3 percent. Due to lower gas prices and unseasonably warm summer weather, gas-fired generation in the Division increased by 18.5 percent (26 billion kilowatthours), while coal-fired generation fell by 1.7 percent (2.4 million short tons of utility use) from 1997.

The West North Central Census Division had an increase of 4.4 percent in total electricity generation in 1998. Coal-fired generation, which accounts for about two-thirds of the region's electricity generation rose by 6.0 percent, with an increase of 6.4 million short tons of utility coal consumption. Gas- and oil-fired generation, minor components in the region, rose by 58.4 and 9.3 percent, respectively.

The Mountain Census Division had an increase of 4.3 percent in total electricity generation, while it experienced a large decline in hydroelectric generation of 10.6 percent (5 billion kilowatthours). Coal-fired generation grew by 6.5 percent, for an increase of 6.7 million short tons in coal consumption over the 1997 level, in large part to replace lost hydroelectric generation in the Pacific Contiguous Census Division, as well as in the Mountain Census Division.

The Pacific Contiguous Census Division had the largest drop in electricity generation of any Census Division, 1.3 percent (almost 4 billion kilowatthours). Hydroelectric generation, the region's dominant power source, declined by 11.3 percent (over 21 billion kilowatthours). Coal-fired generation rose by 49.3 percent, replacing some of the lost hydroelectric power, but coal is a minor component of the region's total generation. Coal consumption in the Division rose by 2.6 million short tons in 1998.

Non-Electricity Sectors

Coal consumption in the non-electricity sectors (coke plants, other industrial plants, and residential/commercial users) totaled 104.0 million short tons in 1998, down by 3.1 percent from the 1997 level.

Metallurgical coal consumption (carbonization) at coke plants in the United Stated declined by 8.1 percent to 27.8 million short tons (Table 1), and coke production declined by 9.8 percent to 20.2 million short tons. Pig iron production in the United States fell by 3.0 percent in 1998. The average price of metallurgical coal delivered to coke plants was down by 3.7 percent, from $47.61 per short ton in 1997 to $45.85 per short ton in 1998. Notable here is that while two coke plants closed in 1998, one new coke plant (Indiana Harbor) opened during the year, the first new coke plant in the United States in 16 years.

Coal consumption by other industrial plants and residential/commercial users declined by 0.8 million short tons, to a level of 76.3 million short tons in 1998. The average delivered price of coal to industrial consumers was $32.33 per short ton, almost identical to the 1997 price of $32.41 per short ton.

Exports and Imports

Exports

The sharp decline in U.S. coal exports in 1997 continued in 1998, as exports fell by 7.6 percent to 77.2 million short tons. Unlike 1997, however, the 1998 decline was mostly in metallurgical coal, which fell by 9.7 percent to a total of 47.1 million short tons (Figure 7). There were declines in metallurgical coal exports to all major export regions except Africa.

U.S. steam coal exports similarly declined in every major market except North America (Canada and Mexico). Weak international coal prices, a strong dollar, and increased competition from other exporting countries were the major factors contributing to these declines. The average price for U.S. steam coal exports fell by 7.2 percent in 1998 to $30.08 per short ton. The average for metallurgical coal exports declined slightly to $44.58 per short ton.

Exports to Europe, the primary market for U.S. steam coal, fell by 38.0 percent to 7.8 million short tons in 1998, reflecting reductions in exports to all but three countries. The pattern of exports changed dramatically. The four largest U.S. steam coal importers of 1997 in Europe-- Italy, Spain, Portugal, and the United Kingdom--cut imports in 1998 by 4.4 million short tons, a 49-percent decline. On the other hand, Ireland and Germany, both relatively minor importers of U.S. steam coal in 1997, rose to second and third largest, respectively, in 1998. Competition in the European steam coal markets came from Colombia, Venezuela, and South Africa, as well as interfuel competition from natural gas.

Steam coal exports to Asia declined by 15.3 percent to 5.5 million short tons in 1998. Japan's imports rose slightly, but that gain was overshadowed by the decline in exports to Korea and Taiwan. In addition to weak prices and strong competition from Australia and Indonesia, U.S. exports to Asia were also hurt by the weakened Asian economies.

The African market remained tiny, importing less than 100,000 short tons of U.S. steam coal in 1998, almost all to Morocco. Likewise, the South American market for U.S. steam coal dried up in 1998, with every country reducing imports by at least half from their 1997 levels.

On the positive side, U.S. steam coal exports to Canada rose by 47.1 percent, or 4.8 million short tons, in 1998. Shipments to Canada continued to be bolstered by increased purchases by Ontario Hydro, which shut down several nuclear power plants in 1997 for upgrades, substituting increased coal-fired generation for the lost nuclear generation.

U.S. metallurgical coal exports fell by 9.7 percent in 1998 to 47.1 million short tons, victim of a worldwide recession in the iron and steel industry. Pig iron production fell by 1.3 percent worldwide in 1998. Imports of U.S. coking coal declined in every region except Africa. In Europe, by far the largest market for U.S. metallurgical coal, imports fell by 2.8 million short tons. Only Spain increased its imports noticeably, while Romania reduced its imports of U.S. metallurgical coal by 1.1 million short tons, the most among the European countries.

The rest of the world followed a similar pattern--weak increases in a few countries, substantial declines in most. Metallurgical coal exports fell in all Asian countries for a total decline of 1.2 million short tons. Exports to South America, mostly Brazil, fell by 0.8 million short tons. In North America, metallurgical coal exports to Mexico virtually disappeared, driving the region to an overall small decline. Breaking the pattern of declines, exports to Africa rose slightly in 1998, as metallurgical coal exports to South Africa increased by 32 percent (0.3 million short tons).

Overall, Brazil remained the largest importer of U.S. metallurgical coal with 6.5 million short tons in 1998, followed by Canada with 4.9 million short tons.

Imports

U.S. coal imports totaled 8.7 million short tons in 1998, a 16.5-percent increase over 1997. Imports represented less than l percent of total U.S. consumption and were equivalent to about 10 percent of total U.S. exports. The jump in imports followed 5 years of more-or-less random fluctuation within the range of 7.0 to 7.5 million short tons. The increase was attributable to weak prices for offshore coal and preparations by utilities to meet the stricter sulfur emissions requirements of CAAA Phase 2, which go into effect on January 1, 2000. U.S. imports of steam coal are invariably low-sulfur coal. The average price of all imported coal to the United States fell sharply to $32.18 per short ton in 1998, a 6.2-percent decline from the 1997 price of $34.32 per short ton (Figure 6).

Colombia remained the largest supplier of U.S. imports, with 3.5 million short tons, followed by Venezuela (2.5 million short tons), Indonesia (1.5 million short tons), and Canada (1.2 million short tons). U.S. imports were primarily steam coal for electricity generation, but coal from Canada was largely metallurgical coal used by coke plants in Illinois, Indiana, and Michigan. The largest importers of steam coal were Jacksonville Electric Authority, New England Power Company, Gulf Power, Central Hudson Gas and Electric Corporation, and Tampa Electric Company. Together, they received more than 70 percent of all U.S. steam coal imports.

Coal Stocks

At the end of 1998, coal stocks in the United States totaled 163.0 million short tons, an increase of 22.6 million short tons from their prior-year level. Consumers, primarily electric utilities, held a total of 128.9 million short tons in coal stocks, up by 22.5 million short tons, and coal producers and distributors held 34.1 million short tons, essentially unchanged from the 1997 year-end level (Figure 8).

Year-end utility coal stocks rose to 121.4 million short tons, an increase of 22.6 million short tons from the 1997 level. Utility coal stocks rose in every region except the New England Census Division and in nearly every State outside the New England and Mountain Census Divisions. Two factors were primarily responsible for the buildup. Areas hard hit by the severe delivery problems experienced by Union Pacific Railroad in 1997, especially the West South Central Census Division, began replenishing their stockpiles in 1998, and mild weather in most of the country in the late fall and winter months of 1998 substantially reduced coal consumption by utilities. In addition, ice storms caused widespread power outages for significant periods of time in several States (Maine, Virginia, and Maryland), reducing the coal burn in those areas despite cold weather.

Year-end coal stocks at other industrial plants remained unchanged from 1997 levels, holding at 5.6 million short tons. Coke plant coal stocks also remained virtually unchanged at 1.9 million short tons.

Summary

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