President Donald Trump promised to revitalize the coal industry, approving new plans and bringing back jobs. Coal Country, desperate for something to believe in, had no other choice but to cast a ballot for the real estate billionaire mogul, especially since his opponent vowed to put coal miners out of business. For Trump, it was a noble cause to try to rejuvenate a dying sector that has been instrumental to America’s economic ascent for decades. Unfortunately for states that have relied on mining to pay the mortgage, Trump’s vision has not come to fruition.
Coal Demand Slumps
Many critics will blame the previous administration for waging war on coal, applying carbon rules, implementing egregious red tape, adopting strict environmental standards, and making it difficult to approve new projects. It is true that the Trump administration is easing the burden placed on coal, but it is not enough to fight market forces.
Coal retirements are being driven by the relatively cheap cost of natural gas.
According to the U.S. Energy Information Administration (EIA), total coal consumption is estimated to decline 4% to 691 million short tons (MMst), the lowest level since 1979, when President Jimmy Carter presided over a weak economy and Superman dominated the box office. While coal demand has been steadily falling since peaking in 2007, it has been anticipated that this year’s consumption will be 44% lower than 2007 levels.
Overall, consumption by the nation’s power grid will finish the year down 4%, and then tumble another 8% in 2019.
It’s easy to lay the blame on former President Barack Obama, but the market is the one hammering the final nails in coal’s coffin. There are several trends occurring in the energy industry today:
- Coal-fired power plants are retiring.
- The age of coal generation is only increasing.
- Capacity factors of coal plants are declining.
- Competition from natural gas and renewable sources is intensifying.
The last one is the most important of all: natural gas.
Natural Gas Dominance
Coal retirements are being driven by the relatively cheap cost of natural gas. Since the dramatic rise of domestic output more than a decade ago, the commodity has cost very little. Up until recently, prices have averaged $2 to $3 per million British thermal units (btu) since 2007 – it has spiked to nearly $5 in recent weeks on speculative investing.
Because of the shale revolution, natural gas has seen its representation in the U.S. electric power grid soar from just under 20% in 2007 to more than one-third in 2018. During this same period, coal has witnessed its share of electricity needs diminish from 50% to approximately one-quarter.
With the U.S. projected to remain the top natural gas producer in the world, you can expect even more adoption of the energy supply, which will bring down the cost of hydro rates and slash the country’s emissions. The federal government reported that 36 gigawatts of new natural gas capacity will have come online this year.
And the demand is there. An October 2018 Short-Term Energy Outlook (STEO) from the EIA showed that consumption will soar to a record high of 80.58 billion cubic feet per day (bcfd) in 2019.
It isn’t just the U.S. The rest of the world is bearish on coal and bullish on natural gas as Russia, Iran, and Canada are all expected to raise production levels.
When the Republicans took control of all three branches of government, there was a lot of excitement over the potential resurgence of coal. Two years into this administration, all that fervor has either dissipated or vanished.
It is true that output has increased, and exports have gone up. But only 2,000 new coal jobs have been created since Trump took office, totaling roughly 50,000 – peak employment was 900,000 in 1923.
President Trump declared this past summer that “the coal industry is back.” But some administration officials appear to be already throwing in the towel on the initiative. Speaking at the National Petroleum Council in Washington, Energy Secretary Rick Perry urged Coal Country to develop natural gas and petrochemical industries because “this is an economic opportunity for a region that needs it.”
They have heeded his advice. The states that have been home to coal for decades, like Ohio, Pennsylvania, and West Virginia, are making the transition to natural gas. These areas have seen their output top 27%, up from 2% in 2008.
Everyone is beginning to adapt to the changing landscape.
Coal is Dead – What’s Next?
Trump should be commended for easing burdensome regulations and allowing coal to sink or swim on its own. Its survival will depend not on the state but the market. Right now, as natural gas becomes the dominant form of energy, coal’s future is not bright.
That’s what happens in the free market. Every industry and generation must contend with modern times and new discoveries. Since the industrial revolution, business keeps uncovering fresh sources of energy: from whale oil to crude oil, from coal to natural gas.
Who knows what else will be discovered in the next 50 or 100 years?
In the classic 1971 Isaac Asimov novel, The Gods Themselves, a scientist finds the Electron Pump, a machine that produces unlimited energy for free. Of course, it is eventually learned that the power is emanating from a hole in space that is connecting our universe with a parallel one, which will soon destroy the galaxies and turn the sun into a supernova.
The crux of the story rings true: Scientists, entrepreneurs, and the common man will always stumble upon some vast energy supply that will transform society for the better. We are better off now than we were before we drank Texas Tea. We will be better off tomorrow than we are today with the latest breakthrough, whether that’s something buried deep into the recesses of our planet or the invention of perpetual motion machines that defy the laws of physics as we currently understand them.
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