Spot Central Appalachia coal prices climbed to $204.95 per ton for the week ended Sept. 30, up more than 3 percent from the previous week. This price is the highest level since 2005.
Newcastle coal futures, the benchmark for Asia, touched a record high of nearly $450 per ton. before easing to around $400.
Domestic coal production has been holding steady. EIA numbers show that U.S. coal output totaled 12.1 million short tons, up 1.9 percent year over year. In addition, year-to-date coal production totaled nearly 438 million short tons, up close to 4 percent from the same time a year ago. (A short ton, or just ton in the United States, equals 2,000 pounds. A long ton, used in Britain, is 2,240 pounds.)
In 2021, coal represented more than one-fifth (22 percent) of U.S. electricity generation, behind natural gas (38.3 percent). By comparison, wind and solar accounted for just 9.2 percent and 2.8 percent, respectively, last year.
But the fuel source has been surging on strengthening global demand, particularly as the Northern Hemisphere braces for cold temperatures and snowy weather.
Global Energy Demand Crunch
S&P Global data discovered that total spot transaction volumes advanced 22 percent in the third quarter, up from the April–June period.
In July, the International Energy Agency (IEA) projected in a market update that worldwide coal consumption would return to all-time highs in 2022.
“Global coal demand is being propped up this year by rising natural gas prices, which have intensified gas-to-coal switching in many countries, as well as economic growth in India. Those factors are being partly offset by slowing economic growth in China and by the inability of some major coal producers to ramp up production,” the IEA stated in its report.
Indeed, Chinese coal imports have been subdued, slumping about 15 percent year over year in August. Beijing’s zero-COVID strategy has resulted in lockdowns in multiple pockets of the country, which has weakened economic growth and applied pressure on demand for a broad array of commodities, from soybeans to crude oil to coal.
However, this has been offset by robust European demand. In the first half of 2022, coal was Germany’s largest source of energy production, representing almost 30 percent, according to confirmed data from the Institute for Energy Research (IER). This has been due to the European Union’s (EU) ban on Russian coal imports, forcing eurozone members to search for alternative sources. Moscow had provided approximately 70 percent of the EU’s thermal coal prior to the restrictions. In the first seven months of 2022, Australia exported 2.9 million metric tons of coal to Europe, up 73 percent from all of 2021.
European seaborne thermal coal demand is also forecast to increase 14 percent, or 12 million metric tons, in 2022.
“With many European nations increasing thermal coal use, an additional nine gigawatts (GW) of coal-fired capacity has been made available to meet energy demands and make up for the decline in Russian energy imports. Coal prices are surging, but they are still more affordable than record-high gas prices,” wrote Adam Woods, Wood Mackenzie’s senior research analyst, in a recent research note.
It is not only European households that have been struggling. The National Energy Assistance Directors Association warned that more than 20 million U.S. households are behind on their utility bills. The organization also estimated that the average cost of home heating during the winter season will rise more than 17 percent, to $1,202, the highest in a decade (pdf).
Electricity costs surged close to 16 percent on an annualized basis in August, according to the Bureau of Labor Statistics (BLS).
The situation could intensify as coal-producing firms have been running at near maximum capacity without the infrastructure to boost output. Moreover, supply-chain snafus could prevent companies from even expanding production capabilities, experts say.
“The growing energy crisis created originally by the underperformance of renewable energy was exacerbated by the Russian invasion of Ukraine, resulting in Russia’s closure of the Nord Stream 1 pipeline due to sanctions imposed by the West,” the IER noted last week. “But the high prices are caused by energy shortages, and Europe is looking for enough energy supplies to get through the winter.”
According to Fitch Solutions, coal prices are expected to fall next year and in 2024.
While businesses and households are feeling financial pain, coal stocks are climbing on price growth. Peabody Energy, for example, shares jumped more than 3 percent on Wednesday, to above $27, lifting its year-to-date gain to nearly 139 percent. Arch Resources rose roughly 2 percent, to $138 midweek, bringing its year-to-date increase to above 50 percent.