Coal Market Update
The trends that we have talked about in the past in the coal industry continue apace. Coal production continues to decline, the amount of electricity provided nationwide by coal continues to decline, and the number or operating coal fired power plants continues to decline. There is nothing discernible on the horizon that would indicate that these trends are likely to reverse; not only anytime soon, but ever.
The primary driver of these trends continues to be the increasingly cheaper and growing supply of natural gas. By some estimates, the cost to produce electricity from natural gas is now down around $60/ megawatt hour while coal is closer to $100/megawatt hour. Fracking technology continues to improve which is allowing more gas to be accessed at cheaper rates and, not good news for the rail industry, at locations closer to the well sites. More sand and lower quality sand found around the Permian Basin is utilized to a greater extent to extract gas from the huge deposit in the Permian basin. If this trend continues, higher quality sand from Wisconsin, Minnesota and other places in the Midwest will not have to be railed so far to serve the gas industry in Texas.
To put some numbers on the decline of coal in the power industry, it is noteworthy that in 2009 there were 1,436 coal fired power plants in the U.S., by 2018 that number had dropped to 614 coal fired power plants. Right along with that decrease in power plant numbers, the amount of coal processed in the country peaked in 2008 at about 1,100 million tons. In 2018 that had dropped to 600 million tons. Over the last decade there has been a similar decline in the amount of electricity generated by coal fired plants. It is estimated that of the 600 million tons of coal produced in 2018, 390 million of those tons moved by rail.
From another perspective, in 2010 there were 316 GW [gigawatts] of electricity generated by coal, by 2018 that number had dropped to 246 GW. It is projected that more coal powered electricity will come off line over the next few years as natural gas remains plentiful and cheap and the environmental concerns with coal will only become more pronounced. Where does that leave the coal car fleet?
With almost 100,000 coal gondolas and just under 25,000 rapid discharge hoppers in the coal fleet, there are over 1000 trainsets in the coal fleet. If each set makes 4 turns per month between mine and plant, that fleet can move 6,000,00 car loads of coal annually. Last year there were about 4.3 million car loads of coal hauled by rail. If cycle times for the coal fleet improve even slightly, say 10%, the over-capacity in the coal fleet goes up quickly. If energy generated from coal continues to drop at rates seen over the past decade, the coal fleet will need to downsize much further, easily 20+% over the next ten years. Call us if you would like to discuss strategies.