For coal, 2016 was the worst of times and the best of times. A year that began with plunging production, idled furnaces and a spate of bankruptcies ended with mining on the rise, coal plants humming and an ally set to take over the White House.
And 2017 could be better yet. Declining stockpiles, reduced supply and a cold winter mean coal could take back its crown as the top power producer in the United States, financial analysts say.
“It couldn’t get any worse, probably, and now things are looking somewhat better and perhaps a lot better,” said Matthew Preston, an analyst at Wood Mackenzie, a consultancy.
A change in the political climate has helped, of course. President-elect Donald Trump appears poised to scrap President Obama’s plans to cap carbon emissions from power plants. That should help stabilize coal demand, which had been falling at a precipitous clip.
But just as in coal’s decline, politics obscure the more important factor behind the industry’s rebound — at least in the short term.
Cheap natural gas has steadily eroded coal’s market share, and eventually displaced the fuel as America’s leading source of power generation.
Coal’s woes have been exacerbated by a dramatically oversupplied domestic market. That changed in 2016. The wave of bankruptcies that toppled the country’s first- and second-largest thermal coal producers by volume, Peabody Energy Corp. and Arch Coal Inc., coincided with a substantial cutback in production.
The 173 million tons mined in the first three months of the year were the lowest quarterly total since 1981, according to the U.S. Energy Information Administration.
A hot summer helped address the industry’s other lingering challenge: giant stockpiles at power plants across the country. Utilities’ reserves peaked in January, by Doyle Trading Consultants LLC’s estimate. The energy research firm estimated electricity generators accumulated enough coal to power their plants for almost 130 days.
In September, the last month for which data are available, utilities had 100 days of reserves. That’s still a high figure. At the same time in 2015, utility reserves were 97 days.
The difference now is climbing gas prices, projections for a cold winter and recently restructured mining firms, now unencumbered by previous debts.
“On the domestic thermal side, we’ll see stockpiles continue to drop, which will bring the market back into balance and reflect coal’s actual value,” said Hans Daniels, CEO of Doyle Trading Consultants.
TRUMP ADVISER: DON’T OVERPROMISE
There are limits to the optimism. Rising natural gas prices will prompt a new round of drilling, bringing more gas back onto the market and once again driving down prices. Preston, the Wood Mackenzie analyst, foresees a “yo-yoing” electricity market, where coal and natural gas duke it out for market share.
“I think the big takeaway is gas is here to stay,” he said. “It’s a major player in the power generation market. It changes the dynamics. It probably means the coal industry is going to do things different in terms of how they do contracts and things like that.”
Renewables, too, pose real competition. Onshore wind and utility-grade solar costs have declined 41 percent and 64 percent, respectively, since 2008, according to Energy Department projections.
The sheer destruction of the coal industry in recent years also means America’s once undisputed power leader is unlikely to return to its lofty perch in the country’s electricity hierarchy. In 2015, coal retirements accounted for 80 percent of all retired capacity, according to EIA.
Bob Murray, the CEO of Murray Energy Corp., has taken to counseling the president-elect against promising too much to the battered industry.
“I have suggested that he temper his own expectation for what he can do for bringing coal back and to temper what he says to our coal miners,” Murray said in a recent interview. “He can’t bring coal back to where it was.”
Still, there is little doubt coal is on the mend. Production was up 21 percent in the third quarter, according to analysis by S&P Global Market Intelligence. Financial analysts expect the trend to continue in 2017, as gas prices rise and utilities continue to work off reserves.
Another way to measure coal’s return: After seeing energy-related emissions decline in 2015 and 2016, EIA expects the sector’s greenhouse gas emissions to increase by 0.9 percent in 2017.