The coal market is witnessing a resurgence in the United States as natural gas prices skyrocket and utilities turn to coal-powered generation, according to Alliance Resource Partners LP (ARLP) CEO Joseph Craft.
“Commodity prices for each of our business segments have skyrocketed to levels not experienced in several years,” Craft said as second quarter earnings results were issued. “Looking ahead, coal market fundamentals are extremely strong both domestically and internationally.”
ARLP is a diversified natural resource company with 1.7 billion tons of coal reserves in Illinois, Indiana, Kentucky, Maryland, Pennsylvania and West Virginia. The company also has oil and gas mineral interests in the Permian, Anadarko and Williston basins.
“In our primary U.S. markets, coal-fired generation has surged in response to a 7.5% year-over-year increase in power demand through the first half of 2021 and soaring natural gas prices,” Craft said. With utilities upping coal-fired generation, “stockpiles in our markets have been significantly drawn down and, with an elevated forward price curve for natural gas, coal demand is expected to be stable through 2022.”
Natural gas prices have boomed this summer, cresting the $4.00/MMBtu mark last week. This is compared to prices that dipped below $2 in July 2020.
Craft said he also sees “attractive market options” in the international market for U.S. coal producers as spot prices for coal reach 13-year highs. “We are hopeful we can benefit from these favorable market conditions. As a result, we are increasing the midpoint of our targeted total coal sales volumes for 2021 by approximately 6% to 32.9 million tons.”
Led by higher coal sales volumes and oil and gas prices, the company reported net income of $44 million (34 cents/share) for the second quarter, compared with a loss of $46.7 million (minus 37 cents) in the year-ago period.
The ARLP results are in line with larger trends in energy markets. Booming electricity demand this year has led to an uptick in coal consumption in the United States after years of falling demand. This demand has also cut into U.S. natural gas consumption, according to the International Energy Agency.
Meanwhile, analysts at Raymond James & Associates Inc. said switching between coal and gas is the key variable in balancing the natural gas market. Still, coal’s share of the power generation stack would have to increase by more than 3 Bcf/d year/year in order to achieve this, the analysts said.
Given current trends, the Energy Information Administration said in its latest Short Term Energy Outlook that it sees carbon dioxide emissions in the United States growing by 0.3 billion metric tons, or 7%, in 2021.
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