OPIS Insights

Barron’s Senior Energy Writer Laura Sanicola and OPIS Director of Data Analytics Andy Blumenfeld discuss what’s ahead for coal this week.

Watch this week’s episode for insights into how the issues in the Persian Gulf have a ripple effect on natural gas and coal inventories and what we can expect for electricity demand given the growth in AI data centers.

Transcript:

LAURA SANICOLA: Hi, everyone. This is Laura Sanicola, author of Barron’s Energy Insider, and I’m here today with Andy Blumenfeld, director of data analytics at OPIS. Andy, thanks for joining us.

ANDREW BLUMENFELD: I’m happy to be here.

SANICOLA: I figured it was a good time to talk about coal since we’ve had this multi-week episode of weak Henry Hub gas prices, domestic gas prices in the US, a lot of associated gas coming from drilling for more oil in the Permian as oil prices stay high. I mean, you’ve had some really, really weak gas, and that’s generally very bad for coal. Can you contextualize this for me?

BLUMENFELD: Yes. So we’ve had a very mild winter compared especially to a year ago. And because of that, electricity demand has been much weaker than normal. And natural gas, of course, being an important fuel for the wintertime for heating. Demand in the residential sector has been lower, so we’ve been building natural gas inventories.

And with the issues in the Persian Gulf, we’re also producing a lot of associated gas out of Western Texas at this point, and that is also affecting the marketplace. So we’ve got these natural gas prices, which have been hovering around $2.80 a million over at the Henry Hub.

We do expect some modest lift, but we’re now starting to see the temperature start to change. We’re looking at some good summer heat, early summer heat coming in really in the next week or two across the eastern part of the United States. And this is going to push power demand significantly. And with that goes a lot of consumption for natural gas, especially in those eastern plants, but also for coal. And we think that that could go a long way towards correcting some of the oversupply that we had in the first part of the year. We are getting a little more optimistic about what we’re seeing from the coal side.

From a coal producer perspective, we think that demand is going to pick up and pick up fairly early. We do need the power. Demand is absolutely there.

Given the growth in AI data centers, etcetera, that’s certainly been in the news. So we do feel that this is going to continue to drive electricity demand you know, to record levels, and we do think that the coal units are gonna be running pretty hard this summer.

SANICOLA: Okay. So, you know, heat may be providing a few months of lift and then we see where we go from there.

Of course, for people who don’t know, coal is more competitive when gas prices are higher.

I guess another sign that I was looking at was sort of you’re starting to see state legislators, legislatures rather, voting to keep certain coal units online. Note this has been a a key point of the Trump administration to sort of force utilities to continue to operate some coal units even if the utility says this is not economic, it’s losing money, you know, this is gonna increase ratepayer costs.

But now you do have some instances of states saying, you know, I think that’s not the case in our situation and we do need the coal. You know, what are you seeing? Is it surprising you because there were planned retirements? How are you thinking about all of this with respect to what it means for domestic coal demand?

BLUMENFELD: I mean, there’s some it’s a very interesting turn, especially of late. So in Colorado, Colorado Springs Utilities has been asking the state to allow it to extend the life of its one coal unit that’s operating called Ray Nixon.

They are in a bind right now because they have strong demand and don’t have a good replacement in place for its expected retirement for the end of the decade. So they’ve asked the state to extend the life of the Nixon plant, and the state approved it. And it will be signed. At least Governor Polis has indicated that he will sign the legislation. This happened just a few weeks after in Pennsylvania.

Two large power plants in the KeyCon, it’s called KeyCon Operating — Keystone and Conemaugh — also received extensions and was signed by Governor Shapiro. What I also find interesting about this, these particular cases, is these are both Democratic governors, all recognizing that they need the capacity, they need the electricity.

And this is the way to at least address this. And they do not want to face an angry electorate who might be facing a loss of electric power. So this is becoming quite important. And it does raise the issues of, you know, who’s going to be feeding the the grid with electricity, what’s needed for, you know, the growth that we’re seeing right now.

SANICOLA: All right. Well, thanks so much, Andy, for putting everything in context for us, and thanks everyone for joining. We’ll see you next week.