Market Trends: Coal
Western coal supply shows largest decline among regions with Clean Power Plan in effect
In the AEO2016 Reference case, total coal production decreases from 873 million short tons (MMst) in 2015 to 827 MMst in 2022 when the Clean Power Plan (CPP) takes effect, and to 643 MMst in 2040. The CPP affects coal supply differently in the West, Interior, and Appalachia regions because of differences in coal quality and markets served (Figure MT-58). Compared with the No CPP case, the West region accounts for the largest share of the decline in total coal production in the Reference case because its share of total domestic coal production is larger than in the other regions (about 55% in 2015), and most western coal is consumed in the electric power sector, which is subject to the CPP. The strongest markets for western coal (about 75% from the Wyoming Powder River basin) are in states where it was more economical to switch to low-sulfur western coal than to retrofit power plants to control sulfur emissions. In both the Reference and No CPP cases, competition from natural gas and renewables, coal plant retirements, and equipment retrofits early in the projection reduce consumption of western coal in those states.
Reduced coal demand in the Reference case delays expansion of coal production in the Interior region, with production in the Interior region declining by 0.7%/year from 2015–30. Starting in 2030, coal production in the Interior region grows before flattening out from 2033–40. In the No CPP case, coal production increases throughout the projection period, by 2.0%/year from 2015–30 and 1.2%/year from 2030–40, because power plants that were recently retrofitted with sulfur emission control equipment to comply with the Mercury and Air Toxics Standards (MATS) that took effect in 2015–16 can use higher sulfur Interior coal.
In the Appalachian region, the effects of the CPP in 2040 are less pronounced than in other regions because major cuts in coal production occurred over the past decade, and further cuts are expected to result from MATS and from fuel competition. In addition, exports and domestic metallurgical coal use, which together represented about 34% of Appalachia’s coal production in 2015, are not directly affected by the CPP. As U.S. steam coal use declines, Appalachia’s coal producers depend increasingly on exports and on domestic demand for metallurgical coal, which together account for 50% of the region’s total coal production in 2040 in the Reference case.
Coal production falls in all AEO2016 cases except No CPP
The No CPP case is the only AEO2016 case in which coal production in 2040 is higher than it was in 2015. Competition from natural gas and renewables, compliance with the Mercury Air Toxics Standard [15], and declining worldwide demand for coal contribute to lower production. In the No CPP case, as natural gas prices, electricity demand, and global coal demand rise, coal production increases from 873 million short tons (MMst) in 2015 to 890 MMst in 2020. After 2020, coal production stabilizes but declines slightly to 877 MMst in 2040 (compared with 643 MMst in 2040 in the Reference case). Production in the other cases varies between 192 MMst lower and 175 MMst higher in 2040 than in the Reference case. Among the cases shown in Figure MT-59, the Low Oil and Gas Resource and Technology case has the second-highest coal production in 2040 (818 MMst) because of higher natural gas prices. Before the Clean Power Plan (CPP) is implemented in 2022, coal production in the Low Oil and Gas Resource and Technology case is higher than in the No CPP case. After 2022, production declines, but it is still 175 MMst higher in 2040 than in the AEO2016 Reference case. The lowest level of coal production in 2040, at 450 MMst (about 52% of 2015 production), is in the High Oil and Gas Resource and Technology case, which has the lowest natural gas prices.
In the High Oil Price case, coal production in 2040 is 105 MMst higher than in the Reference case. In the High Oil Price case, beginning in 2025, rising demand at coal-to-liquids facilities contributes to higher levels of coal production. In the Low Oil Price case, coal production in 2040 varies little from the Reference case because electric power plants have limited ability to substitute oil for coal in electric power production. In the High and Low Economic Growth cases, coal production in 2020 is higher and lower, respectively, than in the Reference case. However, after implementation of the CPP, coal production in the Low Economic Growth case is nearly the same as in the Reference case because lower electricity sales deter investment in new generating capacity fueled by other energy sources, and existing coal plants in some regions are used to meet relatively low growth in demand for electric power. As a result, coal production in 2040 is slightly higher in both the High and Low Economic Growth cases than in the Reference case.
With declines in mining productivity, average minemouth coal prices increase
Average U.S. minemouth coal prices decline in the Reference case from 2015–17 as demand declines and less efficient higher-cost mines are closed. From 2017–30, the average minemouth coal price increases by 0.5%/year, as declines in coal mine productivity, which increase production costs, more than offset declines in coal demand, which reduce prices. Most of the production decline occurs before 2030, with domestic coal demand falling by 1.9%/year from 2015–30, and a smaller 0.7%/year from 2030–40. From 2030–40, the average minemouth coal price rises by 1.1%/year as average mine productivity continues to decline (Figure MT-60).
In the Appalachian region, average minemouth coal prices increase by 0.5%/year from 2015–40 as mine productivity declines. Appalachia’s high-value coking coal continues to account for most of the coal supplied to U.S. steelmakers and exporters of coking coal. Coking coal is priced significantly higher than steam coal, and the price increases over the projection period. Appalachian coking coal provides 36% of the region’s total production volume in 2040, compared with 29% in 2015, which contributes to a higher average coal price for the entire Appalachian region.
In the Interior region, previously unmarketable, but geologically favorable, high-sulfur coal reserves often can be mined with highly productive longwall equipment. While Interior region coal production and prices increase slowly from 2015 to about 2025 in the Reference case, Interior region coal production remains relatively constant over the entire projection period from 2015–40, and prices increase by an average of only 0.2%/ year from 2015–40.
The West region has higher productivity improvement and lower mine costs than the other regions, but its productivity declines as Powder River Basin producers move to more westward reserves with thinner seams and thicker overburdens. As a result, the region’s average minemouth coal price increases by an average of 1.3%/year from 2030–40 (compared with 0.1%/year from 2015–30). Powder River Basin coal production accounts for about 40% of total U.S. coal production over the 2030–40 period.
Endnotes
- U.S. Environmental Protection Agency, “Mercury and Air Toxics Standards (MATS)” (Washington, DC: June 8, 2016), https://www.epa.gov/mats.
