Thursday, October 27, 2016

Coal comeback

A long hot summer in the US has increased demand for electricity, and demand for natural gas, whose price has increased from $2 to $3 per million BTU's.  This increase in the price of a close substitute has increased the demand for coal.  This is a shift in demand.

In the graph above, we see a slight increase in quantity, which represents a dramatic change form the downward trend in demand.  As a result, railroad stocks are up as railroads and barges are the only way to move coal.



  1. I went camping to the the Bedford Forrest State Park, out west in Eva, Tennessee recently. The TVA Johnsonville Fossil Plant was south of us, and lit up like a a city at night. We got to see some of these mentioned barges at work. They were moving coal late into the afternoon Saturday, and were at it again on Sunday morning.

    If you look at the TVA website, here is their section on Coal:

    A large byproduct of burning coal, ash, is now being treated as an asset. The TVA can now sale the formerly useless scrap for re-purposing into commercial building material.

  2. The government's use of taxes and subsidies in the energy industry makes this graph a simplified version of supply and demand. The supply and demand shifts have to be filtered through the lens of the interference with the market. (source:

    To John's point, is this an example of economies of scope? The coal industry has the ability to create a profit off of a previously considered 'waste' product? I wasn't sure in this case, but it reminded me the guitar example.

  3. It appears that most of coals demand is based on uncontrollable factors. Whether you are looking at the alternative fuels and what drives their price increases, which result in the increased demand for coal, or whether you are looking at the base need for increased energy supply, such as the weather. All of these potential shifts in the demand curve are not easily predictable. While they are finding sustainable ways to use what was once considered waste to generate and product additional materials, it still takes great effort to determine how best to estimate and predict the ongoing supply and demand curve for this industry.

    How then do you easily predict the supply and demand curves for this resource? Would the ability to utilize the byproduct from this energy source create a greater shift in the demand, since it would leave very little residue as a result of the ability noted above to take the waste and produce other materials? I imagine it wouldn’t necessarily have all that great an impact on the curves. Does the ongoing impact of so many uncontrollable factors influence the time period needed for market equilibrium to occur? While I know eventually it will occur, I am wondering if there is any feasible way to make it occur sooner, or if they are at the mercy of the uncontrollable forces.

  4. As illustrates in the first graph, in 2012 there was a higher demand for coal versus natural gas production. The price in 2011 of coal use for electric generation in the United States was $2.38, and the price for natural gas was $3.42 U.S dollars per million British thermal units (Statista, 2016). Therefore, coal was a cheaper alternative to natural gas. This trend continued until 2014 when the demand for coal started decreasing and natural gas started to increase. One uncontrollable factor that affected demand for coal was the price of the substitute, natural gas, was reducing while coal prices where increasing.

    Another factor that affected demand was public awareness of the negative impact of greenhouse gases caused by burning coal in the environment, which also effects climate change. Burning natural gas, for instance, produces nearly half as much carbon dioxide per unit of energy compared with coal (Zielinski , 2014). Consequently, consumers who were concerned about the environment stated switching from coal to natural gas. Another uncontrollable factor was the impact of the American Clean Energy and Security Act of 2009 (ACES). The bill proposed a cap and trade system in which the government would set a limit/cap on the total amount of greenhouse gases that can be emitted nationally (Broder, 2009). The act also required companies to buy or sell permits to emit these gases, primarily carbon dioxide CO2. The cap would eventually be reduced over time forcing companies to find other cleaner energy sources to run their company.

    Broder, J. M. (2009, June 26). House Passes Bill to Address Threat of Climate Change. Retrieved from
    Statista. (2016, November 2). Cost of coal and natural gas for electric generation in the U.S. from 1980 to 2015 (in U.S. dollars per million British thermal units) . Retrieved from
    Zielinski , S. (2014, February 13). Natural Gas Really Is Better Than Coal. Retrieved from