Coal market prices continued to trade under pressure in June, with weather retaining shoulder-season qualities in the primary coal using regions. May’s natural gas rally faded midmonth on similar fundamentals, providing little basis for upward movement.
Initial reports on production during the second quarter indicate across-the-board reductions, with little lift from incremental demand. The NYMEX CAPP prompt-month benchmark contract shed $2.82/ton, or 6.5%, furthering substantial losses in April and May. NYMEX PRB lost 25 cents/ton, or 2.5%, showing a little more resilience. The volatile Illinois Basin OTC mark lost $2.62/ton, or 8.4%, during this time, and Northern App physical marks lost 3% to 4% as well.
Natural gas prices fell off from May highs to as low as $2.56/MMBtu before steadying to close the month at $2.80/MMBtu. Although supply continues to grow, rig cutbacks are slowing the rate of growth, creating price support in the high $2/MMBtu range. This should at least keep Powder River Basin and Illinois Basin coal in the money, with Appalachian coal users in their usual tough fight.
Production estimates for the second quarter indicate significantly lower tonnage compared to the first quarter, impacting both bituminous and subbituminous markets. This reflects retirements in coal-fired generation at the first deadline of the U.S. EPA’s Mercury and Air Toxics Standards, or MATS, in April, ongoing weakness in electricity demand and competition from natural gas in the face of that demand. Improved seasonal demand and stable or growing natural gas pricing will provide for modest uplift, but the overall headwinds are fierce. The chart below shows SNL Energy’s current price forecast for the PRB 8800 and 8400 markers.
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“The war on coal” might have just witnessed another battle in April as the latest “Electric Power Monthly” data from the U.S. Energy Information Administration show total natural gas-fired electric generation in April surpassed coal-fired power generation for the first time in history.
The June 25 report from the EIA showed 92,516 GWh was produced in April using gas compared to 88,835 GWh produced using coal. This means that natural gas drove 31% of all electric-power generation in April, up from 22% in April 2010. At the same time, the share of power coming from coal has fallen from 44% in April 2010 to 30% this past April.
While this is the least amount of monthly electricity produced by coal in more than a decade, it is by no means the most power produced using gas. In 2012, another low-price year for natural gas, 138,863 GWh was produced in July and 131,736 GWh was produced in August.
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