U.S. utilities are facing record low coal stockpiles ahead of winter, and congestion on the rails as well as the uncertainty of the vaccine mandate are only adding to the stress.
“Coal shippers are concerned about the full range of factors affecting the rail supply chain at this point, including labor shortages and the possibility of labor interruptions,” John Ward, executive director of the National Coal Transportation Association, told FreightWaves. “Relatively mild fall weather may have eased the situation somewhat, but if we get some stretches of extremely cold weather this winter, resources could get stretched perilously thin.”
U.S. coal stockpiles at the end of September stood at 80 million short tons, which is the lowest monthly level since March 1978, according to a Dec. 7 post by the U.S. Energy Information Administration (EIA). Meanwhile, the number of days of burn for the U.S. electric power sector is about 88 days for bituminous coal and 82 days for subbituminous coal.
“U.S. coal power plants generally stockpile much more coal than they consume in a month. Physical delivery constraints in the supply chain limit how quickly coal plants can increase their stockpiles,” EIA said.
While the North American Electric Reliability Corp. in a November report said an average days of burn in the mid-80s is not concerning, a colder-than-normal winter and high prices for natural gas, another power-generating fuel, could lead to higher coal consumption and stockpile depletion.
Utilities are acutely aware of how low coal stockpiles are, and they have taken steps months in advance of winter to safeguard stockpiles. In October, the PJM Interconnection, which operates the electric grid in 13 states and the District of Columbia, temporarily granted electricity generators more flexibility in building and maintaining coal supplies.
“Higher coal consumption this year in response to weather conditions and high natural gas prices has caused a significant drawdown in inventories,” Ward said. “Many utilities are now carefully rationing the coal they have left to conserve for the possibility of harsh winter weather.”
To preserve coal stockpiles, many utilities have implemented coal unit curtailment initiatives so that they aren’t exposed to potentially unpredictable weather and pricing patterns in January and February. Some utilities have gone so far as to burn natural gas instead of burning coal in the shoulder season of autumn, even though it had cost more for them to burn natural gas since gas prices have been climbing.
However, utilities are also keenly watching the factors that they can’t control. Those include labor shortages, as well as the possibility that a vaccine mandate could impact staffing availability for the railroads that also work as government contractors, such as Union Pacific (NYSE: UNP), BNSF (NYSE: BRK.BRB) and Norfolk Southern (NYSE: NSC). A labor shortage could make it harder to arrange the crews needed to ensure heavy coal trains make it through rural areas without any trouble.
Some utilities are also concerned that the congestion on the network, brought about in part by supply chain challenges at the ports, is adding to delays and to uncertainties over when trains will be able to pick up coal and deliver it to the utilities. There have been limits on how many trains can be on the network, and some utilities are concerned that they won’t be able to fulfill their obligations to the coal producers because the trains already on the network aren’t moving fast enough.
“The 30,000-foot observation from a shipper is that life happens. Weather problems happen. Disasters happen. And it just seems as if whenever we’re in this type of situation — 2013-2014 with the polar vortex, the situation with PSR [precision scheduled railroading] made complicated by COVID and then the supply chain element — there always seems to be such angst, and there just doesn’t seem to be any confidence that the railroads have a plan to mitigate or to communicate correctly what it is that they’re doing and how it’s actually helping,” said Ann Warner, spokesperson for the Freight Rail Customer Alliance, a group whose members include utilities. “So, I think that’s just kind of like the overall concern. It just keeps popping up every few years no matter what the cause.”
For their part, the railroads, including NS and CSX (NASDAQ: CSX), have said they have been more aggressive in pursuing potential employees and retaining current ones so that they have the human resources available to match capacity needs. And some utilities have noted that rail performance has been improving recently following poorer performance in the summer and into fall.
“Our goal is to continue to serve our customers reliably and efficiently,” said CSX spokesperson Sheriee Bowman. CSX has been offering hiring incentives and the railroad is seeking to increase its headcount for train and engine employees, she said.
U.S. coal consumption has fallen over the past decade as utilities turned to natural gas and renewables to generate electricity amid competitive natural gas prices. That drop in coal consumption has led to coal-fired unit retirements, as well as the closure of many U.S. coal mines.
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