Political pundits were quick to take note of President Obama's poor performance in the recent Democratic primaries in West Virginia and Kentucky. The results — in West Virginia, an incarcerated felon named Keith Judd garnered 41 percent of the primary vote — shouldn't be surprising.
Appalachia didn't turn out for President Obama in 2008. The administration isn't exactly friendly to one of the area's largest economic drivers. In April, the EPA issued new regulations that discourage coal-fired electricity generation. And thanks to larger market forces, for which the electorate generally tends to blame the incumbent, the future of the coal-based economy is starting to look bleak.
A few years ago, there was ample reason to be bullish on coal. Producers could look to a vast domestic market whose residents were continually plugging in new devices, and to a bustling export market driven by insatiable demand from China.
Market Forces Turn Against Coal
But market forces have turned swiftly against coal in the past few years. Coal is overwhelmingly used in the U.S. to generate electricity. For decades, it has been a cheap, potent, readily available source. Electricity generation accounts for about 93 percent of coal consumption, as the Energy Information Administration notes. In 2006, coal accounted for 48.5 percent of electricity generation, while natural gas accounted for 18.7 percent.
In the past few years, however, King Coal's historic market position has been under assault. On the margins, renewables are rising rapidly. In 2011, wind added 6,816 megawatts of capacity in 2011 and solar added 1,855 megawatts.
But natural gas is really taking a bite out of coal. The vast new discoveries of natural gas reserves — thanks to the widespread use of fracking -- have led to rising production and falling prices. (This month, nat gas futures have gained 35% from 10-year lows in April.) Unlike oil, natural gas is virtually impossible to export and the infrastructure to support even modest exports won't be available for several years. As a result, power-generating companies have increasingly turned to natural gas and away from coal. And why not? Natural gas is cheaper, cleaner and less controversial. Thanks in part to the displacement of coal by natural gas, U.S. emissions of carbon dioxide fell 1.7 percent in 2011, according to the International Energy Agency. As the IEA reported: "U.S. emissions have now fallen by 7.7 percent since 2006, the largest reduction of all countries or regions."
Nat Gas Gaining Share
In 2010, coal accounted for 44.4 percent of electricity generation, while natural gas accounted for 23.2 percent. (Here's data on the market share of different fuels). Coal used for electricity generation fell nearly 5 percent in 2011. Thus far in 2012, coal has accounted for only 36.7 percent of electricity generation while natural gas accounted for 28.7 percent. Add in the warm winter and continuing efforts on energy efficiency, and coal seems to be left with a smaller and smaller share of a market that experiences little growth. U.S. coal consumption fell 4.5 percent in 2011.
For 2012, the EIA projects domestic consumption is projected to fall even more rapidly — down 12.7 percent. That's a big drop. For a period, coal producers could ignore falling domestic demand. That's because rising foreign use of coal was more than enough to offset declining domestic use. The data show that total U.S. coal production rose actually last year, in large part because exports were growing. As the EIA's quarterly coal report shows, exports soared 31 percent in 2011, to 107.25 million short tons from 81.7 million short tons in 2010. But now this market seems threatened — again, not by regulation and policy, but by market forces.
China, the largest source of coal demand in the world and a growing destination for coal exports, is showing signs of slowing. In April, China's electricity consumption was only 3.7 percent higher than it was in April 2011. As a result, through May 19, 2012, as the EIA's weekly coal production report shows, U.S. coal production is off about 8.3 percent from the same period in 2011.
In theory, the EPA could change its regulations to encourage greater use of coal. But there's not much the government can do to make vast domestic supplies of natural gas disappear, or to kickstart growth in Asia.
Daniel Gross is economics editor at Yahoo! Finance.
Follow him on Twitter @grossdm; email him at firstname.lastname@example.org.
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