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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--As the declining margins of U.S. domestic coal consumption show immediate effects on mining jobs and project development, those margins vary regionally and the medium- to long-term prospects of the industry are being driven by exports. With the decline of coal usage in base power generation causing an adjustment in the domestic market, major coal and energy companies are investing in the export supply chain.
U.S. power generators are switching to gas-firing as shale gas supplies make this more cost-effective, but the cost of imported liquefied natural gas in Europe and other regions makes coal the power feed of choice. Coal exports to European and Asian markets represented 76% of U.S. coal exports in 2011, according to the U.S. Energy Information Administration.
The Netherlands (11 million tons) and the United Kingdom (7 million tons) were in the top 10 destinations for both U.S. metallurgical and team coal exports in 2011. In Asia, South Korea (10 million tons) also ranked in the top 10 destinations. Japan (7 million tons), China (6 million tons) and India (5 million tons) ranked third, sixth and ninth, respectively, in the U.S. metallurgical coal exports. South Korea was the leader for U.S. steam coal imports.
Brazil (9 million tons) ranked first in metallurgical coal destinations, and Canada and Mexico accounted for 12% of total U.S. steam coal exports. In Africa, Morocco (3 million tons) placed sixth for U.S. steam coal exports.
In 2011, metallurgical coal exports totaled 70 million tons and steam coal 38 million tons. The fall in domestic consumption, down 4.6% year-on-year (YoY), and a marginal increase of coal production at 0.9% free up more coal to export. International disruptions meant that Asian countries looked to secure alternative sources. Rising spot natural gas prices in Europe, up about 35% in the year, motivated Europe to take the largest share of U.S. coal exports as power producers moved to use more coal.
In the first quarter of 2012, Europe took the largest share (57.1%) of total U.S. coal exports, increasing both from the last quarter of 2011 and YoY for the first quarter. Exports to Asia accounted for about 25% of the total in the first quarter 2012, down 8.2% YoY. But India with a 202% rise YoY and 33.2% from the previous quarter and China 27.5% up from the fourth quarter 2011 trended positive.
Metallurgical coal exports (17.5 million tons) at an average price of $168.96 per ton, accounted for 61.2% of the total in the 2012 first quarter. Steam coal exports, with an average price of $81.13 per ton, increased 15.3% quarter-on-quarter, and 17.6% YoY to 11.1 million tons.
Currently, U.S. coal companies are investing more than $500 million to increase the coal export supply chain capacity to meet rising overseas demand which, according to the BP Statistical review of World Energy 2012, increased by 5.4% in 2011, representing the highest increase among fossil fuels. The review also reports that from 2001 to 2011, global consumption of coal rose a massive 56%, as oil consumption slowed down.
Peabody Energy (NYSE:BTU) (St. Louis Missouri), Kinder Morgan Energy (NYSE:KMP) (Houston, Texas) and Arch Coal Incorporated (NYSE:ACI) (St. Louis) are all involved in coal export terminal expansions and upgrades to the supply lines. Peabody and KMP have announced long-term agreements to secure and expand the Gulf Coast platform for Peabody's Colorado, Powder River Basin and Illinois Basin coal products. After completion of the projects, KMP's Gulf Coast terminal network will have a nameplate export capacity of about 27 million tons a year. Peabody has secured a rail service agreement with Union Pacific Railroad (NYSE:UNP) (Omaha, Nebraska) to transport Colorado coal to KMP's Houston terminus.
Arch Coal is in a joint venture with KMP to expand the Pasadena deepwater coal terminal into a 10 million-tons-per-year terminal. This will include a second ship loader and rail car loop to handle three 135-car unit trains. The $140 million project is scheduled for completion in mid-2014.
For related information, see July 17, 2012, article - Coal Dethroned by Natural Gas, Shock Waves Continue, and June 29, 2012, article - Peabody Energy Sees Bright Spots for Coal Amid Market Headwinds.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
U.S. power generators are switching to gas-firing as shale gas supplies make this more cost-effective, but the cost of imported liquefied natural gas in Europe and other regions makes coal the power feed of choice. Coal exports to European and Asian markets represented 76% of U.S. coal exports in 2011, according to the U.S. Energy Information Administration.
The Netherlands (11 million tons) and the United Kingdom (7 million tons) were in the top 10 destinations for both U.S. metallurgical and team coal exports in 2011. In Asia, South Korea (10 million tons) also ranked in the top 10 destinations. Japan (7 million tons), China (6 million tons) and India (5 million tons) ranked third, sixth and ninth, respectively, in the U.S. metallurgical coal exports. South Korea was the leader for U.S. steam coal imports.
Brazil (9 million tons) ranked first in metallurgical coal destinations, and Canada and Mexico accounted for 12% of total U.S. steam coal exports. In Africa, Morocco (3 million tons) placed sixth for U.S. steam coal exports.
In 2011, metallurgical coal exports totaled 70 million tons and steam coal 38 million tons. The fall in domestic consumption, down 4.6% year-on-year (YoY), and a marginal increase of coal production at 0.9% free up more coal to export. International disruptions meant that Asian countries looked to secure alternative sources. Rising spot natural gas prices in Europe, up about 35% in the year, motivated Europe to take the largest share of U.S. coal exports as power producers moved to use more coal.
In the first quarter of 2012, Europe took the largest share (57.1%) of total U.S. coal exports, increasing both from the last quarter of 2011 and YoY for the first quarter. Exports to Asia accounted for about 25% of the total in the first quarter 2012, down 8.2% YoY. But India with a 202% rise YoY and 33.2% from the previous quarter and China 27.5% up from the fourth quarter 2011 trended positive.
Metallurgical coal exports (17.5 million tons) at an average price of $168.96 per ton, accounted for 61.2% of the total in the 2012 first quarter. Steam coal exports, with an average price of $81.13 per ton, increased 15.3% quarter-on-quarter, and 17.6% YoY to 11.1 million tons.
Currently, U.S. coal companies are investing more than $500 million to increase the coal export supply chain capacity to meet rising overseas demand which, according to the BP Statistical review of World Energy 2012, increased by 5.4% in 2011, representing the highest increase among fossil fuels. The review also reports that from 2001 to 2011, global consumption of coal rose a massive 56%, as oil consumption slowed down.
Peabody Energy (NYSE:BTU) (St. Louis Missouri), Kinder Morgan Energy (NYSE:KMP) (Houston, Texas) and Arch Coal Incorporated (NYSE:ACI) (St. Louis) are all involved in coal export terminal expansions and upgrades to the supply lines. Peabody and KMP have announced long-term agreements to secure and expand the Gulf Coast platform for Peabody's Colorado, Powder River Basin and Illinois Basin coal products. After completion of the projects, KMP's Gulf Coast terminal network will have a nameplate export capacity of about 27 million tons a year. Peabody has secured a rail service agreement with Union Pacific Railroad (NYSE:UNP) (Omaha, Nebraska) to transport Colorado coal to KMP's Houston terminus.
Arch Coal is in a joint venture with KMP to expand the Pasadena deepwater coal terminal into a 10 million-tons-per-year terminal. This will include a second ship loader and rail car loop to handle three 135-car unit trains. The $140 million project is scheduled for completion in mid-2014.
For related information, see July 17, 2012, article - Coal Dethroned by Natural Gas, Shock Waves Continue, and June 29, 2012, article - Peabody Energy Sees Bright Spots for Coal Amid Market Headwinds.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
