News & Observer | newsobserver.com | U.S. coal becoming a hot global commodity

Published: Mar 24, 2008 12:30 AM
Modified: Mar 24, 2008 01:44 AM

U.S. coal becoming a hot global commodity

Foreign demand drives up its price

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These days, people really are taking coals to Newcastle.

That flow is part of a vast reorganization of the global coal trade that is making the United States a major exporter for the first time in years -- and helping to drive up domestic prices of the one fossil fuel the nation has in abundance.

Coal has long been a cheap and plentiful fuel source for utilities and their customers, helping to keep U.S. electric bills relatively low. But rising worldwide demand is turning American coal into another hot global commodity, with domestic buyers having to compete with buyers from countries such as Germany and Japan.

Environmental concerns have forced some U.S. utilities to cut back plans for coal-burning power plants.

Nonetheless, spot prices for two benchmark American grades of coal, from central Appalachia and the Powder River Basin of Wyoming, have been rising, with occasional dips, since the spring of 2007. They eased in recent days but are still up by 93 percent and 64 percent, respectively, in the last year, according to figures from Doyle Trading Consultants and Evolution Markets.

'Watch out, consumer'

How high prices will go, and how quickly the increases will be passed along to electricity customers, remains to be seen. American utility companies buy almost all their coal on long-term contracts, locking in prices for several years. But as those contracts come up for renewal, price increases are likely, analysts said.

"Watch out, consumer," said David M. Khani, a coal analyst at Friedman, Billings, Ramsey Group. "You're probably going to see accelerating electricity prices in 2009, 2010 and 2011."

Coal and utility executives predict that coal will remain the most economical fuel in years to come. But they concede that any significant rise could have an important inflationary effect, because coal is used to produce about half the nation's electric power and it is vital in steel production.

For coal producers, the new demand abroad is good news at a time when coal is under political attack at home. More than 50 proposed coal-fired power plants, including one planned by Duke Energy near Charlotte, were delayed or canceled over the past year because of concerns about greenhouse gas emissions.

"This export boom right now is the difference between slow growth in our markets and hyperexpansion in our markets," said Gregory H. Boyce, chairman and chief executive of Peabody Energy, the world's largest private coal company. "You have 2 billion-plus people looking for a better standard of living. The world is energy-short, and the U.S. coal sector is beginning to fill that gap."

Many environmental groups see the rising global trade as an ominous development, however, because it promises to confound efforts to limit global emissions. World consumption of coal has increased 4 percent annually in recent years, a major reason that emissions of carbon dioxide are going up, not down. Carbon dioxide is the principal gas implicated in global warming.

"Any rise in coal use around the world is bad news for the environment," said Alice McKeown, who works on coal issues for the Sierra Club. "The U.S. needs to be a leader on global warming, and increasing our coal exports is moving in the wrong direction."

The U.S. will export 7 percent to 8 percent of its coal production this year, up from about 5 percent last year, industry leaders predict. Because of higher prices, the value of coal exports should double to $3.75 billion.

U.S. exports of coal grew from 49 million tons in 2006 to about 55 million tons in 2007, according to coal industry statistics, while domestic production increased by 1 percent. Coal executives say that they expect exports to reach 80 million tons this year, and with railroad and port improvements, to rise to as much as 120 million tons in the next few years.


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