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As U.S. scales back, ‘King Coal’ reigns as global powerhouse
Question of the Day
He sees plentiful opportunities for U.S. coal exports, including $1.3 billion a year in exports to China alone if West Coast ports are built to accommodate the traffic.
While low natural gas prices are causing a massive switch from coal to natural gas plants in the U.S., sky-high gas prices in Europe are prompting many utilities there to switch back to coal, sending demand for coal soaring by 14 percent last year and creating opportunities for U.S. exporters, he said.
Painful transition in U.S.
All of this is good news for the battered U.S. industry, which has been losing market share rapidly in the U.S. amid plentiful supplies of cheap natural gas to fuel power plants. At its peak, coal provided 53 percent of power supplies in the U.S., but that is down to 42 percent today and the EIA says it will fall to 35 percent by 2040.
With an onslaught of U.S. environmental regulations targeting mercury, other toxic emissions and greenhouse gases, U.S. mining companies face daunting challenges to maintain their markets at home, even as the door is opening wide for exports to nearly every other corner of the world.
But taking advantage of the export opportunities will require painful restructuring and major logistical changes to address the needs of foreign markets, and the industry has only begun the transition.
Alpha Natural Resources, a top U.S. coal-mining firm that is being hit hard by the retirement of U.S. coal plants it supplies, has announced it is repositioning itself to take advantage of the growth potential for metallurgical coal in Asia and South America.
Since much of its production heretofore was thermal coal for U.S. power plants, the company is laying off more than 1,000 workers and idling some of its thermal coal mines in Appalachia and Wyoming, according to SNL Energy.
“With fundamental changes taking place in our business, we’re taking decisive actions that set the table for Alpha to compete successfully as a leader in the global coal markets for years to come,” Alpha chief executive Kevin Crutchfield said in announcing the changes. “We have a big opportunity to advance Alpha’s position as a premier supplier of metallurgical coal. Forecasts point to more than 100 million tons of increased sea-borne metallurgical coal demand by the end of this decade.”
Arch Coal, an Appalachian mining firm also heavily affected by coal plant retirements, is restructuring to become a metallurgical and thermal coal supplier to international markets, particularly in South America and Europe, but less so in Asia.
Central Appalachia “is certainly at a disadvantage going to the Asian market, but in the Atlantic market we have an advantage,” said Arch chief executive John Eaves. “We do think markets are short of coal, and we do think there’s a place for [central Appalachian] coal in Europe. From a cost standpoint into Asia, there’s a transportation difference we need to make up. But in South America and Europe, we have an advantage. That’s the way we’re positioning the company.”
To fully take advantage of the export potential in Asia, more port facilities that can handle coal exports must be built, and that is proving difficult as environmental groups — flush with success at reducing the use of coal at home — have vowed to block the export of coal to nations overseas with less stringent environmental regulations.
An Australian firm, Ambre Energy, has announced plans to build a pair of coal export terminals in Washington state and Oregon, but is facing fierce environmental opposition. The company needs an estimated $1 billion in financing to construct the facilities but has run into trouble raising the money.
Tom Sanzillo, finance director at the Institute for Energy Economics and Financial Analysis, an environmental think tank, said a growth slowdown in China and India last year undermined hopes for increased coal exports and made building ports a risky proposition.
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