Lower natural gas prices are hastening European conversion of power generation away from coal, says an analysis released by investment bank Morgan Stanley, according to Freightwaves.
Forbes says overall U.S. coal exports may decline by 15% in 2019.
While U.S. and Canadian carloads of coal averaged about 7 million annually from 2009 to 2011, according to the Association of American Railroads, they dropped to about 6 million during the next three years. They were at 5.25 million in 2015, and essentially leveled off at 4.5 million during 2016 to 2018. Coal shipments for 2019 were at 2.4 million carloads by mid-July.
Further threatening coal are improved capabilities in shipping liquefied natural gas.
“The globalization of natural gas is set to usher in a new energy transition,” says the Morgan Stanley report. “A wave of investment in LNG, which can be easily transported, is unleashing this cheap energy resource and creating a new global commodity market.”
Also driving change is withdrawal of banks, other lenders, and insurance companies from the coal industry (more than 100 since 2013), according to a report by the Institute for Energy Economics and Financial Analysis. Citing climate issues, Morgan Stanley says it will continue to reduce its financial exposure to coal.
In a recent investors’ conference call, Union Pacific officials acknowledged the softer coal market, but are taking it in stride.
“We’ve been living in a coal environment for some time,” says Kenny Rocker, executive vice president of marketing and sales, “So this is not a surprise or anything new to us.”
“Markets go up, markets go down,” says Jim Vena, UP’s chief operating officer. “We’re making the coal trains more efficient so that we can have a better return on the product we’re moving.”
Both Norfolk Southern and CSX Transportation cited declining coal exports in their second quarter financial reports.
The export decline is not limited to Europe. The U.S. Energy Information Administration says Asian markets had increased steam coal demand from less than 10 million short tons in 2016 to 20 million tons in 2017, part of an overall 61% increase of U.S. coal exports in 2017.
But even Asian markets are showing signs of decline: India bought 11.5% less U.S. coal in the first five months of 2019 compared to the same time in 2018, South Korea 31.6% less, and China 66% less, says energy information service S&P Global Platts.
