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Casper, WY (82601)
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Smoke bellows from chimneys of the Indraprastha Thermal Power Station in New Delhi, India, June 13, 2008. About one-forth of air pollution in Delhi is generated by industries and coal based thermal power plants, according to the Indian Environment Ministry. (Gurinder Osan, AP)
AP Photo/Gurinder Osan | Star-Tribune
Powder River Basin coal demand down, but foreign markets beckon
By ADAM VOGE Star-Tribune energy reporter
The United States just doesn't burn as much coal as it used to.
Sunk by uncontrollable forces such as weather and more human factors such as natural gas prices and government regulations on power plant emissions, American coal demand has dropped lately, taking Powder River Basin mine production numbers — and some jobs — down with it.
There are multiple obstacles in American coal's path, and the greatest of them all may be another fossil fuel. Prices for natural gas, a traditionally volatile fuel source, dropped through the floor in April, selling at the Louisiana Henry Hub for less than $2 per million British thermal units, or BTUs, a commonly used unit of energy.
The fuel's price has since rebounded, selling for about $3.30 near the end of 2012, but it's still low, especially considering the commodity averaged more than $12 per million BTU four years ago.
The low prices have been tough for natural gas producers to overcome, even as their production fuels the oversupply. But the prices have also proved detrimental to coal. Some utilities have shifted to the cheaper natural gas and away from coal-fired power plants — a shift that could have long-term implications for coal.
"Right now, one of the reasons it's attractive is that it's really inexpensive," Bruce Hinchey, president of the Wyoming Petroleum Association, said. "Natural gas is also cleaner-burning fuel than coal."
Data from the federal government show the gas gaining ground as a source for electricity in the U.S., to the detriment of coal. Natural gas consumption for electricity generation rose almost 14 percent between 2008 and 2011, says the Energy Information Administration, the U.S. Department of Energy's research and statistics arm. Coal consumption over the same period dropped about 12 percent.
As American demand has dropped, Producers of coal from the Powder River Basin — which stretches into both Wyoming and Montana — have begun to look elsewhere to sell their product. Some hope burgeoning Asian energy markets could provide one outlet for the resource.
According to Peabody Energy projections, Chinese coal demand will rise by about one billion tons of coal per year between now and 2015, eventually reaching 5 billion tons. And in India, about 70 gigawatts of coal-fueled electricity are expected to join the grid the next five years, bringing with it 250 million tons of coal demand.
But Gareth Carpenter, managing editor of Platts International Coal, a publication for energy executives and investors, said in a January interview that while Chinese demand is especially high lately, Powder River Basin coal may not be the way to answer that demand.
The coal's low sulfur content means its less of a pollution concern than some types of coal, but its sub-bituminous nature means it holds less BTUs per ton than other types of coal. It's a trade-off that could poison export hopes.
"The problem is, is that it's a sub-bituminous coal, the Powder River Basin coal," he said. "It's low in sulfur, which is good, but it's sub-bituminous."
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Indonesia — one of America's main competitors in servicing the Asian market — has plenty of sub-bituminous coal, too, and shipping time is 10 days at sea, Carpenter said. The same product could take take months to arrive from the United States.
Carpenter also said the Chinese tend to shop around for low, short-term prices more frequently than the U.S. utilities, where long-term contracts are the norm. U.S. coal producers and utilities usually sign three-to-five-year contracts in an attempt to lock in the best, most stable price.
"My general perception of the Chinese market is they prefer to dip into the spot market when the prices are in their favor," he said.
But before coal companies can even enter the Asian market discussion, they've got to find a way to get the coal across the Pacific Ocean — hence the discussion about new port facilities.
Some companies already ship their product overseas, but mostly through Canada's West Coast ports. In early 2011, Arch Coal announced a five-year deal to ship about 2.5 million tons of coal per year through British Columbia. Cloud Peak Energy shipped 4.7 million tons of product through two terminals in the same province in 2011 and last year signed a new 10-year contract to continue exports through the the ports.
But 7.2 million tons is a drop in the bucket of Powder River Basin coal production. In 2012 — considered a down year for the industry — Wyoming alone produced nearly 400 million tons, according to preliminary data.
Five proposed export terminals could help boost the presence of Powder River Basin coal in international markets. At least three proposals have ties to Wyoming mines, and the other two have indicated at least slight interest in Powder River Basin coal specifically.
If all five are built and reach projected operational levels, as many as 125 million tons of coal could eventually move through Washington and Oregon ports.
The demand is enough to make some think U.S. coal production could remain high, replacing what's lost when domestic coal-fired plants shut down.
"The demand internationally is going to be the largest demand for coal we've ever seen," said Marion Loomis, executive director of the Wyoming Mining Association. "We'd like to be part of that supply chain."
Reporter Laura Hancock contributed to this story
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Reach energy reporter Adam Voge at 307-266-0561, or at adam.voge@trib.com. Read his blog at http://trib.com/news/opinion/blogs/boom or follow him on Twitter @vogeCST.
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