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Coal supplies at electric power plants drawn down in cold weather
The average supply of coal held at electric power generators in December 2013 dropped below 60 days of burn (a function of both inventory levels and anticipated consumption) for the first time since summer 2011. Inventory increased slightly in January but remains below a two-month supply. Coal consumption to generate electricity grew during summer and fall 2013 as the price of natural gas, a competing power generation fuel, increased from low levels in 2012. Consumption of coal increased further this winter due to bitter cold weather that drove up power demand.
As coal regained generation market share from natural gas, operators of coal-fired plants drew down inventory levels that had grown abnormally high in late 2012 and early 2013. Receipts of new coal supplies at electric power plants were generally below the five-year range throughout 2013 (see graph below), leading to low inventory heading into this spring.
Over 80% of coal used by electric generators is purchased under multiyear contracts, which give buyers limited options for adjusting delivery volumes. The main avenue buyers have in reacting to short-term market developments is to replace expiring multiyear contracts with shorter-term spot coal supplies. This strategy gives generators more control over the rate of receipts. As shown below, the percent of coal receipts purchased on spot contracts rose throughout 2013.
Principal contributor: M. Tyson Brown