After a year of low production and depressed prices, coal may outcompete natural gas for electricity generation this winter, according to the Energy Information Administration.
The portion of electricity fueled by coal should see a slow but steady rise over the next three months, while natural gas will see a decline from last year, the EIA recently reported.
The projections fall in line with what Wyoming producers are anticipating, said Travis Deti, director of the Wyoming Mining Association.
“Folks are expecting a pretty good cold winter. When the weather is either very warm or very cold, you use more electricity,” he said. “With natural gas prices hanging the way they are, maybe expecting to creep up a bit, it makes Wyoming coal a little bit more competitive.”
The end-of-the-year boon for coal is a change from the trend over the last two years. It would be a welcome sign to the beleaguered coal communities of Wyoming that their industry is still competitive.
Wyoming’s Powder River Basin provides about 40 percent of the nation’s coal, so market changes hit close to home in the state, Deti said
However, throughout most of 2016, natural gas grabbed the majority share of the electricity market, according to the EIA. For the first six months of the year, 36 percent of the nation’s electricity came from natural gas, compared to 31 percent from coal.
Coal production in Wyoming was reduced to fraction of its normal output earlier this year. From May to June, almost 60 million tons of the dusty black rock were dug from the ground, 35 million less than the same time period in 2014.
When fuel supply exceeds demand, natural gas and coal become tough competitors.
“We’ve talked about the magic number being about $2.50 for gas. If that ticks up, Wyoming coal is right there in the mix to provide for those energy needs,” Deti said.
The battle between the two fuels comes down to operating cost. For refineries that can burn either natural gas or coal, the question becomes which is cheaper to produce, the EIA reports.
The generation cost of natural gas and coal were neck and neck in August, about $21.30 per megawatt hour, according to the EIA.
Coal has benefited since then from a rise in the cost to produce natural gas. That should continue as temperatures drop.
The Energy agency expects the average cost to generate electricity from natural gas will peak in February at $31 per megawatt hour. That is 40 percent higher than what the agency projects coal generation to cost nationally.
Still much depends on how far down the temperature goes, as people crank thermostats to keep out the cold, the EIA reports.
If projections of a harsh winter and an uptick in natural gas prices hold firm, coal may finish out the year stronger than the last. If it’s too warm, natural gas prices won’t rise to projected levels and coal will keep fighting for its share of the market.