Tulsa-based Alliance Resources Inc. isn’t the only major U.S. coal company to lay off workers and suspend some of its mining operations in the Midwest and the East. It is one of many faced with making the same difficult decisions because of the coronavirus pandemic and the lack of demand for fuel to power facilities.
As National Public Radio reported, since the coronavirus hit the U.S., coal mines across the country have been shutting down, laying off workers and slowing production. NPR said bankruptcies loom everywhere in the industry.
“Just about everything that can go wrong, has gone wrong for the coal industry,” says Matthew Preston, a coal analyst at the firm Wood Mackenzie. He says coal demand this year is down between 35 and 40% from last year, “and last year wasn’t a great year.”
Coal has been struggling for many years. Now there’s a drop in demand because of the economic shutdown (as well as warmer weather), but coal is being pummeled more than other sources of energy.
Preston says that right now, coal is more expensive than natural gas, wind or solar in many parts of the country. So when demand slows, coal plants are the first to shut down.
In fact, over three days earlier this month, wind and solar actually produced more electricity than coal in the U.S., the first time that has happened, according to a new research note from the Rhodium Group.
Rhodium found that coal accounted for just 16.4% of the U.S. electric power from mid-March to mid-April, compared with 22.5% for a similar period last year.
All of this means that — just as with the oil glut — there’s too much coal sitting around.
“We’re seeing coal stockpiles run up to some historically high levels,” says Joe Aldina, a coal industry analyst with S&P Global Platts. He says it’s “actually pushing the physical constraints of the coal fired generation system.”
Andrew Blumenfeld, an IHS Markit research analyst, says coal stockpiles at power plants were “basically double what it should be at this time of year.” He also suspects excess inventory is forcing some mining companies to shut down.
Blumenfeld has been in the coal industry for three decades and says he has never seen such a sudden and severe downturn.
“We’re seeing coal production numbers and power generation numbers from coal going back to roughly late 1960s, mid-1970s levels,” he says.
Joe Aldina with S&P Global Platts says coal plants could decide to run at a loss this summer, just to burn off excess stock. He sees a potential rebound for coal next year if natural gas prices rise as expected.
But Manan Ahuja, another S&P Global Platts analyst, says utilities could also just decide to retire coal-fired power plants.
“If you lose some of that capacity permanently,” Ahuja says, “it’s not going to come back.”