Elliott Gue,
Energy & Income
Advisor
 
18 February 2013 – In the US, reports of the death of King Coal by regulation may well be premature, says Elliott Gue in the Energy & Income Advisor. While the US Environmental Protection Agency (EPA) is pursuing new regulations aimed at reducing the country’s domestic coal usage, many utilities are burning natural gas as a base load fuel instead of coal simply because natural gas is now dirt-cheap in the US.

The EIA expects US utilities to shutter about 40 GW of older, inefficient coal-fired plants in the next five years while still running the remaining larger plants, hardly the death of the industry. Even with these capacity reductions, the Energy Information Administration (EIA) forecasts that coal-fired plants will remain the biggest source of power in the US generation mix for at least the next two decades. Rising US electricity demand should require the remaining coal-fired plants to operate at a higher utilisation rate, offsetting the effect of lost capacity.

What about the potential for US coal exports? How is coal faring in global markets?
In Europe, demand for coal has surged as a result of high natural-gas prices in international markets and declining output from nuclear power as Germany phases out its fleet of reactors. London-traded natural gas futures currently fetch about US$11 per million British thermal units–more than triple prevailing prices in the US.

In the Eurozone, coal-fired generation has increased by 14% year over year despite the recession there. India continues to build coal-fired power plants at a rapid pace, fuelling demand for thermal coal; the nation’s coal imports have already surged 15% in 2012.

What about China? Coal provides 80% of China’s electricity, compared to about 50% in the United States. In the past five years, China has added coal capacity that exceeds all US power plants combined. And it is predicted that by 2015 Chinese coal-fired capacity will triple that of the US. According to the China Electricity Council, China’s coal demand should reach 4.3 billion tonnes by 2015.

US coal companies are in position to ship US$1.3 billion in coal exports annually to China if projects to build West Coast coal ports move forward. And, US coal companies already profit from China’s voracious appetite for coal through their coal reserves in the Pacific Rim.

Bottom line − coal-fired plants in both the US and global markets will continue to provide the bulk of base load power generation for years to come. King Coal still sits on the world’s power throne.