Types of Coal
Lignite is the lowest rank of coal with the lowest energy content. Lignite is crumbly and has high moisture content. Lignite accounts for about 7% of U.S. coal production.
Subbituminous coal has a higher heating value than lignite. Subbituminous coal typically contains 35-45% carbon, compared to 25-35% for lignite. About 44% of the coal produced in the United States is subbituminous.
Bituminous coal contains 45-86% carbon and has two to three times the heating value of lignite. Bituminous coal was formed under high heat and pressure It is the most abundant rank of coal found in the United States, accounting for about half of U.S. coal production.
Anthracite contains 86-97% carbon and has a heating value that is, on average, slightly higher than bituminous coal. It is very rare in the United States, accounting for less than 0.5% of the coal mined in the United States.
Source: Stock photography (copyrighted)
The price of coal varies by coal rank, mining method, geographic region, and coal quality.
Coal is classified into four main types, or ranks (lignite, subbituminous, bituminous, anthracite), depending on the amounts and types of carbon it contains and on the amount of heat energy it can produce. Coals with a high heat content are generally higher priced.
In 2008 the average open market price of coal at mines producing each of the four major ranks of coal:
- Lignite: $16.50 per ton
- Subbituminous: $12.31 per ton
- Bituminous: $51.40 per ton
- Anthracite: $60.76 per ton
Surface-mined coal is generally lower-priced than underground-mined coal. Where coal beds are thick and near the surface, as in Wyoming, mining costs and, therefore, coal prices tend to be lower than where the beds are thinner and deeper, as in Appalachia. The higher cost of coal from underground mines reflects in part the more difficult mining conditions and the need for more miners.
When coal is burned, it releases impurities including sulfur which can combine with oxygen to form sulfur dioxide (SO2), a chemical that can harm forests and lakes when it combines with moisture in the atmosphere to produce acid rain. Because of environmental regulations limiting sulfur emissions, low-sulfur coals can command a higher price than high-sulfur coals.
Transportation Costs Can be Significant
Once coal is mined, it must be moved to where it will be consumed. Transportation costs add significantly to the delivered price of coal. In some cases, as in long-distance shipments of Wyoming coal to power plants in the East, transportation costs can be more than the price of coal at the mine.
Most coal is transported by train, barge, truck or a combination of these methods. All of these transportation methods use diesel fuel and so increases in oil prices can significantly affect the cost of transportation and, in turn, the final delivered price of coal.
In 2008 the average sales of coal at the mine was $31.26 per ton and the average delivered price to electric utility power plants was $41.23 per ton, roughly implying a transportation cost of $9.97 per ton, or 24% of the total delivered price.
Most Coal Is Purchased for Power Plants
Over 90% of the coal consumed in the United States is used to generate electricity. The electricity produced from that coal accounts for almost half of all of our electricity.
Since 1976, coal has been the least expensive fossil fuel used to generate electricity when measured based on the cost per Btu (a unit of energy content). Although the cost of generating electricity from coal has increased, it is still lower than generating electricity from either natural gas or petroleum in most areas.
The Price of Coal Can Depend on the Type of Transaction
The majority of coal sold for electric power generation is through long-term contracts, in conjunction with spot purchases to supplement the demand. A "spot purchase" is a single shipment of fuel or multiple shipments purchased for delivery within one year. Spot prices can fluctuate based on short-term market conditions, while contract prices tend to be more stable.
In 2008 about 90% of coal for the electric power industry was bought under long-term contracts and only about 10% on the spot market. In 2008 the average delivered price of coal to power plants was $38.73 per ton for coal sold under contracts and $63.64 for spot purchases.
A More Expensive Coal Is Used To Make Iron and Steel
In addition to producing electricity, coal is also used to produce coke, which is used in smelting iron ore to make steel.
Coke is made by baking certain types of coal in special high-temperature ovens without contact with air until almost all of the impurities are driven off as gases. The resulting product, coke, consists principally of carbon. Coal used to make coke must be low in sulfur and requires more thorough cleaning than coal used in power plants and so is priced higher.
In 2008, the delivered price of coal used to make coke was $118.09 per ton –– more than twice as much as the price of coal delivered to power plants.
The Outlook for Coal Prices
The average delivered price of coal to the electric power sector averaged $2.22 per million Btu in 2009, a 7% increase compared with the 2008 average price, despite decreases in spot coal prices, lower prices for other fossil fuels, and declines in demand for coal for electricity generation. This higher cost of delivered coal is due to the significant portion of longer-term power-sector coal contracts that were initiated during a period of high prices for all fuels. The delivered price is projected to fall by 7% to average $2.06 per million Btu in 2010, and to decline by an additional 2% in 2011.
For the latest outlook of coal prices and data, please see the Short-Term Energy Outlook (STEO) or the STEO Table Builder.