Conspiring Against Coal: Weather, Natural gas

Dec 26, 2017

By Russell Hubbard / World-Herald staff writer| Dec 24, 2017

Weather and natural gas prices have meant fourth-quarter lumps of coal for the railroads that haul the black rock.

One reason: a warmer-than-normal fall, which cut into electricity demand for heating from utilities that burn coal.

And to make it a double whammy on the carbonaceous rock that is a staple profit-maker for railroads, the price of natural gas has been falling all year.

Many utilities can burn either fuel, and when one gets cheaper, the other gets the brush-off.

“I would say both are to blame for the coal shipments,” said Jacob Meisel, a weather and commodities analyst for New York-based Bespoke Weather, referring to both the weather and natural-gas prices. “Nationally, on a net basis, the fall has been slightly warmer than a year ago.”

It shows up in coal shipment statistics. At Texas-based BNSF, owned by Omaha’s Berkshire Hathaway and with 5,000 Nebraska employees, fourth-quarter coal volumes were down 9 percent in mid-December, from the same point a year earlier.

At Omaha-based Union Pacific, with 8,000 employees in Nebraska, shipments on the same basis were down 2 percent. Neither railroad had any comment on coal volumes for The World-Herald.

Shipments don’t appear to be down because the nation’s electric utilities already had existing coal inventories stored on-site headed into the fourth quarter, which started Oct. 1.

In September, stockpiles at utilities were down 1.5 percent from a month earlier, according to the federal Energy Information Administration, which notes that utilities typically don’t go into the fall with much on the ground because summer cooling demand depletes supplies.

Natural gas, meanwhile, has also conspired against coal, which also counts clean-air advocates among its detractors.

The wholesale cost of the blue flame, per million British thermal units, has fallen about 15 percent in the past year, to around $2.70. Commodities analysts generally agree that utilities find it profitable to switch from gas to coal when prices fall below $3 per million Btu.

Weather is the decisive factor when it comes to heating demand as summer fades. This year, heating-degree days, or the number of degrees that a day’s average temperature is below 65 degrees, the temperature below which buildings need to be heated, are down 7 percent from the 10-year average, according to EIA. Overall electricity demand is down 3 percent.

Bill Lapp, a commodities analyst at Omaha’s Advanced Economic Solutions, said the chances of a short-term rebound in natural gas prices benefiting coal generation at utilities appears slim, with high inventories and lots of production online to satisfy huge demand.

Along with heating, Lapp said, natural gas is a major ingredient purchased in massive quantities by chemicals makers, who turn it into compounds capable of being transformed into everything from clothing to furniture.

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