Coal outlook 2019 - Domestic market decline continues

The long-term structural decline of the U.S. coal industry continued in 2018, with a record total of coal generation capacity retired and a further drop in utility coal consumption to levels not seen since the early 1980s.

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This year, the outlook is worse, with the latest forecast from the Energy Information Administration (EIA) projecting that coal’s share of the electric generation sector will drop below 25%, the lowest level since 1949.

We believe the EIA could even be understating the decline. We expect the erosion of the utility market for coal to accelerate through 2019 and into the coming decade due to a combination of factors that have fundamentally changed the domestic electricity generation sector, the prime market for the U.S. coal industry.

These factors include:

• The fracking revolution, which has turned natural gas from a premium fuel into a readily available, low-cost baseload generation resource;
• Persistent cost declines in the renewable energy industry, particularly in wind and solar, a trend that has resulted in clean, reliable alternatives to coal;
• The aging of the coal fleet, which has significant negative impacts on operating performance and costs;
• Significant changes in grid operations, driven by the three factors above, which continue to reduce the importance of coal generation;
• Growing utility sector interest in, and planning for, coal generation phaseouts;
• Rising corporate interest in greener energy resources and sustainable development practices; and
• Growing concern about climate risk and carbon dioxide emissions.

The only piece of good news for the coal industry in 2018 was the significant growth in coal exports, a development that we missed in our outlook last year. For 2018, exports totalled 115.6 million tons, a sharp increase from 2017, but still below past record levels. We also believe it likely represents a high-water mark for U.S. exporters, who have traditionally been swing suppliers in the global market.

Last year, we concluded that coal would continue to lose market share in electricity generation. This year, we expect that erosion to speed up, pushed by the record amount of coal capacity retired last year, projections of continued retirements this year and beyond, and significant changes in grid operations that favor renewable energy and natural gas over coal.

Market forces are driving the transition from coal towards cleaner fuels.

Coal industry executives and the sector’s backers have grasped for bits of good news for years, echoing the refrain that “eventually things are going to turn around.”

We disagree, and find that a careful look at the data, the number of plant closures, the sharp decline in domestic consumption and stagnation in electricity demand, as well as the mediocre stock performance of the coal industry can lead only to one conclusion: there will be no turnaround for coal. We believe that market forces are driving a transition away from coal toward cleaner fuels, and that this transition is gaining momentum.

Press release: IEEFA report: Coal Outlook 2019

Please view full report PDF for references and sources.