Salem Esber, energy markets expert at PA Consulting, is featured on Bloomberg Quicktake discussing the coal and natural gas markets. Bloomberg Quicktake reporter Jennifer Zabasajja and Bloomberg energy editor Will Wade are also featured.
Click here to watch the full segment (start at 1:00 mark)
Jennifer: And we're starting off the show with by the numbers where we give you the data that tells the story. Today's number is 23%. US demand for coal, the world's dirtiest fossil fuel will rise 23% in President Joe Biden’s first year in office. That comes after consumption slumped 36% under President Trump, who had vowed to revive coal. It’s a reminder that market forces can be more powerful than government policies, a fact that threatens to undermine global efforts to turn away from carbon intensive resources in the fight against climate change. World leaders heading to COP26 in a few weeks are pushing to set a final date for phasing out coal power. But it's clear they'll have limited power to steer their economies away from it when the market is clamoring for more electricity. The Energy Information Administration says half of US households that heat primarily with natural gas will spend 30% more than they spent last winter, on average 50% more if winter is 10% colder than average. And more numbers for you: 22% more if the winter is 10% warmer than average.
So joining us now is Salem Esber, a PA Consulting Partner focusing on energy markets and utilities. And also Will Wade Bloomberg News power and energy reporter here in studio with me. Will wrote about US coal use under Biden, despite his pledges to curb fossil fuel use across the country. Will let's just start with the rate for former President Trump's administration. Explained to us why we saw a drop in coal use especially when we saw the former president going out and really talking about how he was going to revive the coal industry.
Will: Yeah, Trump really made a point to try and to court the coal miner vote, he promised to revive the industry. But the fact is, the whole world has been turning against coal. Wind and solar have become a whole lot cheaper, and they don't have the emissions. So utilities decided that they weren't going to be using coal no matter what Trump wanted to do. So emissions were coming down and coal use was coming down. And that's been sort of the trend, the global trends has been less coal use. But during the pandemic, everything really, really plunged. And that was kind of an odd year. So what we're seeing now is a sudden surge in demand for electricity. And that's driving up more natural gas use and more coal use this year. So now we have Biden in office. He's been in, you know, the tail end of the pandemic, and he's really strong on trying to stop climate change. And one of his big pushes is to get rid of coal. But the global market is asking for more electricity, and that's driving up coal, it's going to be a short term rebound. It's not a permanent change. And this trend is still down. But this year, it's going to be a pretty significant jump in coal use in the US.
Jennifer: And Salem, talk about how much of this did you see coming? I mean, you're looking at this all the time you looked at this under former President Trump, how much of this was to be expected? And are you surprised by sort of how we've seen coal use really shoot up in the way that Will was just explaining?
Salem: Yeah, that's a good question, Jennifer, it has been a little bit of a surprise. I mean really it's just a good old fashioned supply and demand story. There's been a quick snap back in demand after the 2020 pandemic lows. And on the supply side oil and gas drillers have really slowed down, and it's driven by capital discipline, it's driven by environmental, social and governance concerns amongst their shareholders, that have really slowed down capital investment in drilling for oil and gas. So that's put the natural gas market a little bit short, so supply and demand tightened up, prices went up. And that plays to the benefit of coal producers and people who are burning coal in their power plants.
Jennifer: So then how much are we going to see it go up Salem? I mean, are you anticipating especially because we're going into winter, people are gonna want to be heating their homes? Is this expected to go up even more?
Salem: Well, the supply and demand and storage story is mostly set for this winter. So really, it's going to come down to how the winter plays out in terms of weather. If it's a mild winter, natural gas prices will come down, coal margins will come down, what people are paying to heat their homes will come down a little bit. If it's a really cold winter, then it could go higher. So at this point, it depends on the winter and the weather and how that plays out.
Jennifer: And Will talk about how this is really complicated, especially considering where we're at right now. A lot of leaders are talking about this green transition. But how do you do a green transition if this is the story that we're talking about?
Will: Well, yeah, that's really complicated. Because we've got the COP conference coming up in Glasgow, starting right at the end of the month. It’s a really important United Nations Climate Conference, leaders from around the world are supposed to get together and hammer out plans for cutting global emissions. And at the same time, we're seeing power shortages around the world, there have been blackouts in India, there have been electricity shortages in China, there is a power plant in Germany that shut down a couple of weeks ago because it literally ran out of coal that had nothing to burn. So we've got people saying we have to cut emissions, and coal is the worst offender of all. And at the same time, they're clamoring for coal, people around the world are saying, ‘Give us as much coal as you can get right now.’ It's a serious contradiction. It's not going to look good when they get to Glasgow.
Jennifer: Is this supposed to be short lived, then Will? What do we know based on sort of what you're reporting?
Will: It’s probably short lived. But certainly the next six months are going to be tricky. The winter is going to be an interesting story. I've heard some early weather forecasts. And of course, you know, it's hard to predict the weather. But the early forecasts I've been hearing are that it could be quite cold in the Northern Hemisphere. So that's really going to drive up demand for gas, for heating, which means there's less gas for electricity, which means that there's more need for coal. But it's hard for the coal producers to dig up any more than they're digging now.
Jennifer: Salem, is there anything consumers can do at this point in time? I mean, other than Will and I were just talking about potentially cutting back on how much you're using? I mean, what is it that consumers can actually do at this point in time? And let's start let's start with consumers. But then I'd also like to get into policies, what can be done here?
Salem: Yeah, that's a good question. For consumers the cold is coming really soon and will be here for real in a couple weeks. So it's almost too late to make any major changes around the house. But you know, sort of the basic things: make sure your windows are well sealed, your doors are well sealed, your kids aren't leaving the door open all the time. And, you know, don't overuse hot water, things like that. Those are the kind of steps you can take at this point in time to get through the winter without spending too much.
Jennifer: Is it across the board, though? I mean, are there specific consumers that need to be aware of sort of higher energy bills?
Salem: I think those particularly that are relying on natural gas, which is more than half the households in the US. Natural gas prices are 70% or 80% higher than they were about a year ago this time going into last winter. And if you're heating your house directly with natural gas, that's your fuel. And so that that cost is going to flow through to your home heating. Electricity is also higher, so if you heat your house with electricity, then your bill will likely also be higher this winter, but maybe not as badly than for those who are using natural gas directly.
Jennifer: And Will what I thought what was really interesting about your article, too, is that you really get into the fact that government policy can try to step in where they can, but energy is going to do what it does, right? I mean, do you anticipate seeing this changing anytime soon? Is there anything that President Biden or other Western countries can actually enact at this point in time, so we're not in the same situation in a few months?
Will: Biden's doing a whole lot to steer policy. But the thing about policy is that it's a slow moving tool, the markets move very quickly. That's why we've seen prices for coal and gas go up so much so fast, but the long term trends against coal are still pretty grim. Nobody sees coal as doing anything but eventually going away, but eventually is the long timeframe.
Jennifer: I know. Salem, I want to get your last thoughts on that. When Will says long timeframe, what are your predictions for that?
Salem: Well, Will was right about that. I mean most of the phenomena that are driving this crunch right now are shorter term phenomenon. You know, longer term policy will be able to push the markets in certain directions and so I think there's still a lot of positivity for the Clean Energy movement, but in the near term there is this crunch and people want to be warm in the winter and they want their lights to work. So all of that results in a tight supply and demand situation with little bit higher prices.