The average minemouth coal price increases by 1.0%/year in the Annual Energy Outlook 2015 Reference case, from $1.84/million Btu in 2013 to $2.44/million Btu in 2040.
The outlook, released April 14 by the U.S. Energy Information Administration, said that higher prices result primarily from declines in coal mining productivity in several key supply regions, including Central Appalachia and Wyoming’s Powder River Basin.
Across the AEO2015 alternative cases, the most significant changes in the average minemouth coal price compared with the Reference case occur in the Low and High Oil Price cases. In 2040, the average minemouth price is 6% lower in the Low Oil Price case and 7% higher in the High Oil Price case than in the Reference case. These variations from the Reference case are primarily the result of differences in the projections for diesel fuel and electricity prices in the Low and High Oil Price cases, because diesel fuel and electricity are key inputs to the coal mining process.
The AEO2015 cases do not include the EPA’s proposed CO2-reducing Clean Power Plan, which is due to be issued in final form this summer and would likely have a substantial impact on coal use for power generation and coal markets more generally.
Increases in minemouth coal prices (in dollars/million Btu) occur in all coal-producing regions. In Appalachia and in the West, increases of 1.2%/year and 1.5%/year between 2013 and 2040, respectively, are primarily the result of continuing declines in coal mining productivity. In the Interior region, a more optimistic outlook for coal mining productivity, combined with substantially higher production quantities, results in slower average price growth of 0.8%/ year from 2013 to 2040. Increased output from large, highly productive longwall mines in the Interior region support labor productivity gains averaging 0.3%/year over the same period.
The average delivered price of coal (the sum of minemouth and coal transportation costs) increases at a similar, but slightly slower pace of 0.8%/year than minemouth prices, with prices rising from $2.50/million Btu in 2013 to $3.09/million Btu in 2040 in the AEO2015 Reference case. A relatively flat outlook for coal transportation rates results in a slightly lower growth rate for the average delivered price of coal.
In the Reference case, new generation capacity added through the projection period includes 144 GW of natural gas capacity, 77 GW of renewable capacity (45% is wind and 44% solar), 9 GW of nuclear capacity, and only 1 GW of coal-fired capacity. Significant variation in the mix of generation capacity types added in the different AEO2015 cases also affects generation prices. Natural gas capacity additions vary substantially, with only 117 GW added in the Low Economic Growth case and 236 GW added in the High Economic Growth case.
Coal use in the Reference case grows from 18.0 quadrillion Btu (925 million short tons) in 2013 to 19.0 quadrillion Btu (988 million short tons) in 2040. As noted, the Reference case and other AEO2015 cases do not include EPA’s proposed Clean Power Plan. Coal use in the industrial sector falls off slightly over the projection period, as steel production becomes more energy efficient. On the other hand, if oil prices were significantly higher than projected in the Reference case, coal could be used to make liquids via the Fischer-Tropsch process. In the High Oil Price case—the only AEO2015 case in which coal-to-liquids (CTL) technology becomes economically viable—liquids production from CTL plants totals about 710,000 bbl/d in 2040, representing about 3.3 quadrillion Btu (including liquids value), or about 180 million short tons, of coal consumption.
Coal output falls sharply in 2008-2013 period
Between 2008 and 2013, U.S. coal production fell by 187 million short tons (16%), as declining natural gas prices made coal less competitive for generating electricity. In the AEO2015 Reference case, U.S. coal production increases at an average rate of 0.7%/year from 2013 to 2030, from 985 million short tons (19.9 quadrillion Btu) to 1,118 million short tons (22.4 quadrillion Btu). Over the same period, rising natural gas prices, particularly after 2017, contribute to increases in electricity generation from existing coal-fired power plants as coal prices increase more slowly. After 2030, coal consumption for electricity generation levels off through 2040. Again, this is without figuring in the Clean Power Plan.
Compliance with the EPA’s Mercury and Air Toxics Standards (MATS), which take initial effect on April 16, coupled with low natural gas prices and competition from renewables, leads to the projected retirement of 31 GW of coal-fired capacity and the conversion of 4 GW of coal-fired capacity to natural gas between 2014 and 2016. However, coal consumption in the U.S. electric power sector is supported by an increase in output from the remaining coal-fired power plants, with the projected capacity factor for the U.S. coal fleet increasing from 60% in 2013 to 67% in 2016.
In the absence of any significant additions of coal-fired generating capacity, coal production after 2030 levels off as many existing coal-fired units reach maximum capacity factors and coal exports grow slowly. Total U.S. coal production in the AEO2015 Reference case remains below its 2008 level through 2040.
Across the AEO2015 alternative cases, the largest changes in U.S. coal production relative to the Reference case occur in the High Oil and Gas Resource and High Oil Price cases. In the High Oil and Gas Resource case, lower natural gas prices lead to a significant shift away from the use of coal in the electric power sector, resulting in coal production levels that are 13% lower in 2020 and 11% lower in 2040 than in the Reference case. In the High Oil Price case, higher oil prices spur investments in coal-based synthetic fuels, which result in increasing demand for domestically produced coal, primarily from mines in the Western supply region. In the High Oil Price case, coal consumption at coal-to-liquids (CTL) plants rises from 11 million short tons in 2025 to 181 million short tons in 2040, and total coal production in 2040 is 13% higher than in the Reference case.
In the other AEO2015 cases, variations in the quantities of coal produced relative to the Reference case are more modest, ranging from 4% (49 million short tons) lower in the Low Economic Growth case to 4% (40 million short tons) higher in the High Economic Growth case in 2040.
Factors that limit the variation in U.S. coal production across cases include:
- the high capital costs associated with building new coal-fired capacity, which limit potential growth in coal use;
- the relatively low operating costs of existing coal-fired units, which tend to limit the decline in coal use; and
- limited potential to increase coal use at existing generating units, which already are at maximum utilization rates in some regions.
Regionally, strong production growth in the Interior region contrasts with declining ouput in Appalachia in the AEO2015 Reference case. In the Interior region, coal production becomes increasingly competitive as a result of improving labor productivity and the installation of SO2 scrubbers at existing coal-fired power plants, which allows those plants to burn the region’s higher-sulfur coals at a lower delivered cost compared with coal from other regions. Appalachian coal production declines in the Reference case, as coal produced from the extensively mined, higher-cost reserves of Central Appalachia is replaced by lower-cost coals from other regions. Western coal production in the Reference case increases from 2017 to 2024, in line with the increase in U.S. consumption, but falls slightly thereafter as a result of competition from producers in the Interior region and limited growth in coal use at existing coal-fired power plants after 2025.
U.S. coal exports decline from 118 million short tons in 2013 to 97 million short tons in 2014 and to 82 million short tons in 2015 in the AEO2015 Reference case, then increase gradually to 141 million short tons in 2040. Much of the growth in exports after 2015 is attributable to increased exports of steam coal from mines in the Interior and Western regions. Between 2015 and 2040, U.S. steam coal exports increase by 42 million short tons, and coking coal exports increase by 17 million short tons.