Source: Institute for Energy Economics and Financial Analysis
For the four weeks ending May 25, coal shipments averaged 13.9 million tons, modestly lower than the same period in 2018. Overall tonnage is back on track after a slow start to the quarter, driven by stable export markets and low fleet inventories. Compared to forecasts from earlier this year, higher bituminous demand has offset lower western and subbituminous demand.
Electric-sector demand is now projected to decline from 631 million tons in 2018 to 558 million tons in 2019 before coming under further pressure through 2022. Announced coal retirements over the next four years combined with lower natural gas prices are projected to push coal generation demand to a low point of 424 million tons per year. The overall coal market (domestic demand and exports) is projected to decline by 237 million tons from 2018-2022. While coal retirements create a ceiling on domestic steam coal demand, potential displacement by natural gas creates year-over-year variability in demand. The persistence of low natural gas prices creates a constant threat of coal displacement, but higher natural gas prices could conversely preserve 60 million to 100 million tons of demand lost at current price projections. As noted previously, firmer crude oil prices have worked to maintain high levels of associated natural gas supply, depressing natural gas spot prices through spring.
S&P Global Market Intelligence forecasts production for 2019 at 304 million tons for Northern and Southern PRB, a decline of 28 million tons compared to 2018. Retirement of coal generation in the Midwest and Texas, along with lower natural gas prices, is projected to shrink the market to 237 million tons through 2022. Modest growth opportunities include displacement of smaller western coal producers and expansion in export markets.
Lower production for export from the Illinois Basin during the first quarter has been offset by the restart of key mines that were closed due to operational issues in 2018. However, as in other coal regions, natural gas prices are expected to move further downward through 2020, with shale gas deliverability into the Midwest pressuring Illinois Basin coal volumes. Illinois Basin production is projected to fall to 103 million tons per year in 2019 and reach a low of 87 million tons in 2022.
Appalachian basin coal production has increasingly shifted to metallurgical and export steam markets, with long-haul thermal domestic markets continuing to erode. While export markets are projected to ease, strong seaborne pricing into 2019 is likely to support exports through the first half. Many coal plants are expected to retire in 2019, and more appear under pressure due to the competitive price of natural gas. S&P Global Market Intelligence estimates total 2019 production at 193 million tons, down by 8 million tons from 2018. Production is forecast to decline by an additional 39 million tons in 2020.