Long-Term U.S. Coal Production Forecast to Increase as New Mine Development Outpaces Mine Closures

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Researched by Industrial Info Resources (Sugar Land, Texas). According to data from the EIA, U.S. coal production continues to inch higher and reached an all time high in 2006 with 1.161 billion tons of coal produced in the U.S. That represents an 8.2% increase in production from U.S. coal mines since 2000. In 2000, U.S. mines produced 1.073 billion tons.

The number of operational coal mines is increasing in the U.S., reversing a long-term declining trend. This is especially true for eastern coal basins where historically the number of coal mines has reduced significantly. Industry consolidation, environmental pressure to use low sulfur coal, especially PRB coal from the west, and more efficient mining techniques has led to fewer mines producing more coal. As more and more power generators bring environmentally mandated flue gas desulfurization scrubbers online, more power plants are able to utilize high sulfur content eastern coal, leading to the opening and expansion of coal mines in the Appalachian, and Illinois basins. The overall trend, however, is for Western coal basins, especially low sulfur from the Powder River Basin (Montana/Wyoming), to continue to take more market share from eastern basins. However, transportation issues continue to constrain this trend. The industry will see a leveling out of production from eastern coal basins experiencing recently declining production, with the main production increases coming from Western mines.

Ninety percent of the coal mined in the U.S. is used to fuel power plants. With plans in the works for more than 87,000 megawatts of coal-fired generation unit additions, coal production is expected to continue to rise. Depending on the heat content of coal, a 1,000 megawatt power plant will require somewhere between 3-4 million tons of coal annually. A conservative estimate places the amount of coal needed to produce 87,000 MWs at about 300 million tons per year. That’s about a third of current U.S. production. Its currently reasonable that at the current rate of coal production growth of around 2-3% per year, the U.S. could be mining enough coal to meet these planned coal-fired unit additions by about 2020. However, it is likely that not all of the planned coal-fired capacity will be built, and some of this new capacity will be replacement capacity, to replace retiring and outdated units, resulting in a significantly lower capacity increase.

Clean coal initiatives, the desire for alternative fuel choices and rising demand will drive coal mine production into the foreseeable future leading to increased coal production in the 2-3% per year range. Expect to see coal production to eclipse 1.2 billion tons in the next two years.

Due to coal prices and stockpile situations, coal miners have throttled back on coal mine expansions and new mine development somewhat this year. See related February 5, 2007 news article - Major U.S. Coal Producers Temper Capital Spending Programs in 2007. Activity had reached fevered pitch in 2005 and 2006.

Some of the major mine development projects have been pushed out; however, Industrial Info is tracking more than $4 billion worth of coal mining projects, including new mines, mine expansions and prep plant construction expected to begin construction within the next 2-3 years.

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