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Powder River Basin Coal

Freight cars sit loaded with coal in January 2015 at Black Thunder coal mine in Campbell County.

Dismal coal news is seemingly everywhere these days. Alpha Natural Resources and Arch Coal, two of the country’s leading coal companies, have filed for bankruptcy. Wyoming mining hit a 13-year low in 2015. And natural gas was on track to displace coal as the country’s leading source of electricity generation for the first time in history through most if not all of 2015.

Usually, each story about coal’s woes contains a line that goes something like this: Cheap natural gas, an oversupplied market and mounting regulation have resulted in lower coal burn.

All of which is true. But today we’re going to dive a little deeper into what that statement really means. So, without further ado, here is a layman’s guide to America’s rapidly changing power sector. (Apologies in advance for the lengthy title.)

Coal has long been king when it comes to power generation

Let’s start with a little history. King Coal was a well earned moniker for the black rock. Thirty years ago, the fuel accounted for 56 percent of U.S. electricity production. Half of America’s power generation a decade ago came from coal. Heck, it was 39 percent of U.S. electricity production just two years ago.

Nothing else even came close for much of that time. Natural gas has risen from 10 percent of U.S. power generation three decades ago to nearly 30 percent in 2014. Nuclear has hovered around 20 percent for the last two decades. Conventional hydropower, another traditional heavyweight, has fallen from around 15 percent in the early 1980s to 6 percent last year.

2015 was an unprecedented year in American electricity production

The U.S. Energy Information Administration releases monthly power generation figures. The November numbers, the most recent available, tell the story of 2015. Coal accounted for 29 percent of U.S. power generation in November. Natural gas, by comparison, was 34 percent.

November wasn’t an anomaly. Natural gas surpassed coal in six of 11 months through November. That had never happened before April, when natural gas first wrestled the crown of top electricity producer away from coal.

The grand debate: Commodity cycle vs. fundamental shift

The million-dollar question facing coal today is whether 2015 was the bottom of a vicious commodity cycle or evidence of an overall shift.

In the commodity downturn corner are people like Kipp Coddington, director of the University of Wyoming’s Carbon Management Institute. He argues weak economic growth in countries like China have produced an oversupply of coal and weighed down prices. Natural gas, meanwhile, gained widespread use because horizontal drilling and fracking made it readily available.

Coddington and others in his camp believe coal will rebound with the resumption of strong economic growth in developing countries. He also argues gas prices can’t stay low forever and must eventually rise, making coal more competitive here at home.

But others are less sure. The market for thermal coal (i.e. the coal used for power generation) is largely domestic, says Robert Godby, director of the Center for Energy Economics and Public Policy at UW. China mostly consumes imports of metallurgical coal used in steel making. That helps explain the bankruptcies of large producers like Alpha Natural Resources and Arch Coal, which operate metallurgical mines in the eastern U.S., but doesn’t explain declining demand for thermal coal.

Usually you would expect a decline in the thermal sector to be accompanied by a downturn in the U.S. economy. But that hasn’t happened, Godby notes. American electricity growth is stagnant, but it hasn’t declined. In other words, he believes coal’s woes are not tied to the traditional fluctuation in commodity prices.

And where the commodity cycle camp see gas prices rising, Godby and the fundamental shift crowd see gas remaining low thanks to the technological advancements made by America’s drillers.

Now to be fair to Coddington and Godby, I’ve simplified their positions here. Both see nuances in the market. (This is a 101, after all. You’ve got to take their higher level courses to go into more depth!) But that captures the general outline of the debate today.

The short-term outlook isn’t bright, and the long-term trends are still difficult to discern.

Whether coal rebounds or continues to slide depends on a series of unknowable factors. For instance, do the 195 signatories of the Paris climate accord stick to their commitments or do they waver? Does the price of renewables continue to plummet? Can economic solutions for carbon sequestration and utilization at coal plants be discovered and deployed?

Still, we’ve got some long-term projections we can point to. The Environmental Protection Agency estimates coal will fall to 27 percent of U.S. power generation under President Barack Obama’s carbon cutting initiative.

The EIA, in its analysis of the president’s draft proposal, estimated Powder River Basin coal production would fall 34 percent to 214 million tons by 2024.

Of course, all this assumes the plan goes into effect. It could be overturned by the courts or thrown out by a new president. Conversely, a new president could also decide to take more ambitious measures to curb carbon emissions.

We do know this much: The short-term outlook is bleak. Ironically, one of the main issues facing coal is there is just too much of the stuff right now. A relatively warm winter has seen power demand fall year over year. Couple that with utilities’ preference for natural gas and what you get are growing coal stockpiles. The nearly 189 million tons of coal reserves recorded in November represents a 32 percent increase over the same time last year.

Put differently, the country has more coal than it has use for at the moment.

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Follow energy reporter Benjamin Storrow on Twitter @bstorrow

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