Barron’s Senior Energy Writer Laura Sanicola and OPIS Data Analyst Andrew Blumenthal discuss what’s ahead for the US coal markets this week.

Watch this week’s episode for insights into why a Michigan coal-fired power plant was forced to remain open by the Department of Energy and what the ramifications of that might be for consumers.

Transcript:

LAURA SANICOLA: Hi, everyone. This is Laura Sanicola, author of Barron’s Energy Insider, and I’m here today with Andy Blumenthal, data analytics director for North American coal markets at OPIS. Andy, thanks for being with me today.

ANDREW BLUMENTHAL: I’m happy to be here.

SANICOLA: So something happened last month that I know you were keeping a close eye on. The latest coal-fired power plant in Michigan that was set to retire was forced to stay open again by the Department of Energy. Can you tell us a little bit about how and why that happened?

BLUMENTHAL: So it truly was an eleventh hour order from the from the secretary, Chris Wright, secretary of energy, and he used his powers under the Federal Powers Act to keep the plant operating for ninety days, which is a provision of the law. The reason behind it, that was given, is that the plant is potentially needed to fill some gaps for summer power demand.

In addition to that, there’s no hiding the fact that the Trump administration has been very much pro fossil fuels and therefore pro coal. And while it is a literally a last second order, it certainly is not a surprise given the stance of the administration of late.

SANICOLA: Is anyone going to have to swallow the costs of keeping this coal plant operational, whether it be the coal producers, the plant operators, the utility? And, is coal cost competitive with natural gas right now?

BLUMENTHAL: So the utility that operates the plant is Consumers Energy. This plant is located in Michigan. It’s a very large plant. It’s got three generating units. The utility, when this order came out, said that they are investigating ways to recover the cost that’s involved. And it’s the cost of not only the plant itself, but the utility up until this order had already planned for additional or replacement generation capacity, be it from natural gas or renewable sources.

So at this point, the utility now is finding itself with a lot of excess capacity, and those costs have yet to be, whoever whatever plant is operating, be it the coal or the natural gas, those costs for maintaining and operating that capacity has to be borne by somebody. So that’s something that’s still be still to be worked out.

Now in terms of the actual generating cost, we can look at what was delivered to plant from the latest data. And in the first quarter of this year, for example, the delivered price of natural gas into consumers energy was just under four dollars a million BTU. The coal units, the the price of the coal that’s going into this this plant, the Campbell plant, is about thirty five percent less. It was coming in around two dollars and forty cents a million BTU. So that’s just the price of the fuel itself. Now there’s plant efficiencies and that sort of thing, but all things considered, it’s hard to make up, you know, with plant efficiencies, that type of a price gap.

So consumers may not be terribly upset by the situation at least through the summer, but, I also remind people that these ninety day orders could continue. There could be another ninety day to orders at the end of August. So, to be determined, and there’s plenty of unit retirements out there that we’re waiting to see what happens, and we could see a repeat of this, at another at other coal units across the country.

SANICOLA: So is the takeaway for investors trying to make sense of this that coal potentially has more life left in it than markets expect? Or, you know, what’s your overall takeaway of the situation?

BLUMENTHAL: Certainly. If you just look for difference between one week and the next, I mean, this this plant consumed four million tons of coal a year. And for a coal producer, one train load of coal, you know, is probably three to four hundred thousand dollars of of revenue, delivered for the the cost of the plant itself is probably, you know, three quarters of a million dollars just and they use a roughly a train of coal every day. So it adds up quickly. And for the coal producers, this is new business. So, you start to multiply this against, you know, additional plants that, you know, remain online. Again, this is now business that they haven’t haven’t seen before or hadn’t expected at least for the second half of this year, potentially in twenty twenty six and beyond.

SANICOLA: Alright. Thanks so much, Andy, as always, and thanks for joining us, everybody. We’ll see you next week.