This article originally appeared on the website of Ohio State's College of Food, Agricultural, and Environmental Sciences (CFAES) as part of the College's 12 Days of Experts communications campaign.
Dec. 5, 2014
COLUMBUS, Ohio – Facing another Christmas with coal-filled stockings hanging above your fireplace? Though a household of naughty children is never a good thing, the good news is that the coal used to fill those stockings should be relatively affordable in 2014.
While coal prices have risen slightly in the past year, they are still below historical highs, according to an economist from Ohio State University’s College of Food, Agricultural, and Environmental Sciences.
“The good news is, while the prices of a number of other things have gone up this year, like beef, PlayStation games and college tuition, the price of bad children has not,” said Matt Roberts, a commodities expert in the college’s Department of Agricultural, Environmental, and Development Economics.
Roberts also holds appointments with Ohio State University Extension and the Ohio Agricultural Research and Development Center, the statewide outreach and research arms, respectively, of the college.
Coal prices have risen slightly in the past year, but the increase has been so minimal — at 2 percent, or $5-7 per ton — that consumers will not feel the impact.
“Right now coal costs $2.36 per million British thermal units, or BTUs. During the third quarter of 2013, prices were the highest on record when they reached $2.39 per million BTUs. The 10-year average is $2.34 per million BTUs,” said Roberts. “Historically, we are above average for coal prices, but we are not at the record prices we saw in 2013.”
According to Roberts, several factors are to blame for the slight increase in 2014 coal prices, including transportation costs and the impact of last winter’s record low temperatures.
Most of the coal that is used in the United States is produced in the Western U.S. and, like corn, wheat and other commodities, the coal industry is fighting for congested rail space. Additionally, due to the bitter cold last winter, coal usage was above normal, and inventories fell at plants around the country.
Both of these factors have resulted in coal supplies at relatively low levels heading into the winter of 2014-15.
Normally, Roberts said, “roughly 20 percent of all coal plants would have under 30 days of supply onsite.
“Right now, about 40 percent of all coal plants have under 30 days of supply onsite.”
However, Roberts says that due to the availability of other energy sources, consumers will not feel the pinch of these slight increases in coal rates on their wallets. “We know that we can generate electricity with natural gas. However, natural gas is still more expensive than coal,” he said.
The booming natural gas industry in the U.S. has had an impact on domestic coal production, too. Nonetheless, U.S. coal production has declined only slightly, due to increased exports to a coal-hungry Chinese market.
“Natural gas is easier to transport, it can be sent through pipelines, and it is cleaner, it has lower carbon emissions — but it is more expensive,” Roberts said. “However, the difference in the cost between coal and natural gas has over the last five years plummeted. Historically, natural gas was twice as expensive as coal per energy unit. In 2007-2008, it was four times as expensive. Now it is less than two times as expensive.”
Additionally, should we have another winter with record lows, the natural gas industry will be more affected than the coal market.
“If this winter is abnormally cold, we will likely see coal-fired power plants reduce generation early in the winter to make sure there is enough coal at the end of the winter. But likely where we will see the price impact is in natural gas prices, which will almost certainly go up quite a bit as everyone tries to use natural gas instead of coal,” Roberts said.
And how has the coal industry impacted the agricultural marketplace in 2014? According to Roberts, the impact can only be seen indirectly through electricity prices for commercial users, such as those in commercial agriculture or manufacturing.
However, good news abounds for residential users according to Roberts. “Residential users will not see coal price increases reflected in their electricity rates because the residential electricity market is so heavily regulated.”