Types of coal

Lignite is the lowest rank of coal and has the lowest energy content. Lignite is crumbly and has high moisture content. Lignite accounts for almost 8% of U.S. coal production.

Subbituminous coal has a higher heating value than lignite. Subbituminous coal typically contains 35%–45% carbon, compared to 25%–35% for lignite. About 44% of the coal produced in the United States is subbituminous.

Bituminous coal contains 45%–86% carbon and has two to three times the heating value of lignite. Bituminous coal was formed under high heat and pressure. Bituminous is the most abundant rank of coal found in the United States, accounting for almost 48% of U.S. coal production.

Anthracite contains 86%–97% carbon and has a heating value that is slightly higher on average than bituminous coal. Anthracite is rare in the United States, accounting for less than 0.3% of the coal mined in the United States.

The price of coal varies by coal rank and grade, mining method, and geographic region.

Coal is classified into four main ranks (lignite, subbituminous, bituminous, and anthracite) depending on the amounts and types of carbon it contains, and the amount of heat energy it can produce. Coal with high heat content is generally priced higher.

The average sale prices of coal at mines producing each of the four major ranks of coal in 2013 were:

  • Bituminous: $60.61 per ton
  • Subbituminous: $14.86 per ton
  • Lignite: $19.96 per ton
  • Anthracite: $87.82 per ton

Surface-mined coal is generally priced lower than underground-mined coal. In locations where coal beds are thick and near the surface, like in Wyoming, mining costs and coal prices tend to be lower than in locations where the beds are thinner and deeper, like in Appalachia. The higher cost of coal from underground mines reflects the more difficult mining conditions and the need for more miners.

When coal is burned, it releases impurities that can combine with oxygen to form sulfur dioxide (SO2). When SO2 combines with moisture in the atmosphere, it produces acid rain that can harm forests and lakes. Because of environmental regulations limiting sulfur emissions, low-sulfur coals can command a higher price than high-sulfur coals.

Coal transportation costs can be significant

Once coal is mined, it must be transported to where it will be consumed. Transportation costs add to the delivered price of coal. In some cases, like in long-distance shipments of Wyoming coal to power plants in the East, transportation costs can be more than the price of coal at the mine.

Most coal is transported by train, barge, truck, or a combination of these modes. All of these transportation modes use diesel fuel. Increases in oil prices can significantly affect the cost of transportation and thereby affect the final delivered price of coal.

In 2013, the average sales price of coal at the mine was $37.24 per ton, and the average delivered price to the electric power sector was $45.21 per ton, resulting in an average transportation cost of $7.97 per ton, or 18% of the total delivered price.

Most coal is purchased for power plants

About 93% of the coal consumed in the United States is used to generate electricity. In 2014, about 39% of total U.S. electricity generation was from coal. When based on the cost per million British thermal units (Btu), coal has been the least expensive fossil fuel used to generate electricity since 1976.

The price of coal can depend on the type of transaction

Most of the coal sold for electric power generation is sold through long-term contracts. Supplies are supplemented with spot purchases of coal. Spot purchases are shipments of fuel purchased for delivery within one year. Spot prices can fluctuate based on short-term market conditions, while contract prices tend to be more stable. In 2013, the average delivered price of coal to the electric power sector was $45.21 per ton, which includes both spot and contract purchases.

A more expensive coal is used to make iron and steel

Pouring molten metal while casting iron
Pouring Molten Metal While Casting Iron

Source: Stock photography (copyrighted)

In addition to producing electricity, coal is also used to produce coke, which is used in smelting iron ore to make steel.

Coke is made by baking certain types of coal in special high-temperature ovens, and it does not contact the air until almost all of the impurities are driven off as gases. As a result, coke is mostly carbon. Coal used to make coke must be low in sulfur and requires more thorough cleaning than coal used in power plants. This makes the coal more expensive.

In 2013, the average delivered price of coal used to make coke was $157 per ton—about three and a half times higher than the price of coal delivered to the electric power sector.

The outlook for coal prices in the United States

In the Annual Energy Outlook 2015, the U.S. Energy Information Administration (EIA) projects that coal prices will generally increase through the year 2040. Higher prices result primarily from declines in coal mining productivity in several key supply regions, including Central Appalachia and Wyoming's Powder River Basin.