Estimated coal stockpiles at U.S. electric power plants in March were about 196 million tons, almost 18% above the level in March 2011 and above the five-year range, said the U.S. Energy Information Administration in a brief May 31 posting on its website.
Coal stockpiles are up as a result of declines in coal consumption by electric power plants. Coal stockpiles typically decline during summer and winter months as power plants burn through stocks to meet seasonal peak electric demand for cooling and heating load, respectively, EIA noted. However, mild weather during this past winter combined with falling natural gas prices dampened demand for coal-fired electricity.
Days of burn in inventory in February were at their highest levels since 2008, when EIA began computing the statistic, the agency noted. Days of burn in March were slightly below the February levels, reaching a national average of 91 days of burn. Mostly for reliability reasons, plant operators maintain stockpiles within certain ranges (usually about 50 to 80 days) even though coal supply disruptions of that duration are unlikely.
In 2005, there was a case where two train derailments in the West disrupted coal deliveries out of the Wyoming end of the Powder River Basin for months, reducing stockpiles at some power plants to only days and forcing some generators to run their natural gas plants harder and buy off-system power so their coal plants didn’t run out of supply. It is that kind of perfect-storm incident that coal stockpiles are designed to alleviate.
EIA noted that coal-fired generators are using various commercial strategies to manage their growing coal stockpiles, including:
- Not accepting additional purchases of coal by invoking force majeure. For example, GenOn Energy (NYSE: GEN), a merchant generator, described its invocation of force majeure in a recent filing with the Securities and Exchange Commission due to a lack of physical space to store coal, EIA said.
- Identifying new coal storage facilities. Duke Energy Indiana, in an example not cited by EIA, has created outside storage area for its big Gibson coal plant.
- Renegotiating or buying out long-term contracts with coal sellers, as Duke Energy Indiana testified that it has done to the Indiana Utility Regulatory Commission, EIA said.
- Deferring coal purchases to later years in a long-term contract. Some generators then dispatch gas units ahead of coal units or use other hedges against further price fluctuations in coal markets.
By the way, the GenOn filing cited by EIA is the May 10 Form 10-Q, which said: “We experienced a decrease in power generation volumes during the three months ended March 31, 2012, as compared to the same period in 2011, particularly in our Eastern PJM and Western PJM/MISO segments. The decrease in generation occurred primarily at our coal-fired facilities and was caused by a combination of unseasonably mild weather and contracting dark spreads resulting from decreasing natural gas prices. Consequently, we have significant coal inventories at our generating facilities and, in the case of our Mid-Atlantic facilities, such inventories are at the maximum available storage capacity of such facilities. As it is impossible for us to take coal at such facilities, we have issued notices of force majeure under the respective coal contracts. A number of the suppliers dispute our invocation of force majeure. In our communications with the affected coal suppliers, we have advised them that we expect to take all the coal for which we have contracted, at the contracted prices, as we are able to do so.”