By April 27, 2017 0 Comments Read More →

Trump coal boost no match for cheap natural gas

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Union Pacific Corp’s chief executive says he expects utilities to favor natural gas over coal despite President Trump’s executive order that rolled back power-plant emissions standards. UP photo. 

Coal demand dropped as utilities switched to natural gas

The top executive of Union Pacific Corp told Reuters that US President Trump’s executive order to boost the coal industry by rolling back power-plant emissions standards will likely have much less impact than the market than the cost of natural gas.

Chief Executive Lance Fritz told Reuters that coal currently accounts for just over 30 per cent of US electricity generation, down from a high of 50 per cent.  Fritz says he believes it will remain at that level moving forward, despite Trump’s executive order.

“The stabilization that we’re seeing in the market is much more driven by the price of natural gas as a competitive fuel,” Fritz told Reuters.

Union Pacific and other major railroad companies in the US were hit by a drop in coal demand over the past two years as utilities switched to natural gas.

Prices for natural gas averaged less than $3/million Btu over the past two years, about one-third the price in 2005.  Analysts expect prices to remain mostly below that level through at least 2023, based on current futures trading on the New York Mercantile Exchange.

“If (natural gas) drops to around $2 for an extended period of time, then coal will struggle again,” Fritz told Reuters.

In the first quarter of this year, Union Pacific reported a better-than-expected profit that was boosted by a 25 per cent increase in coal revenue.  Coal freight volumes increased in Q1 from a low base at the end of 2016.

 

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