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Written by Martin Lynch, European News Editor for Industrial Info (Galway, Ireland) - The hard times for the U.S. coal sector look set to continue and worsen during 2015 as cheap gas undermines coal in the electricity generation sector.
The Energy Information Administration (EIA) said that the use of coal for electric power will fall by 2.2% this year because of lower natural gas prices and retirements of coal power plants in response to the implementation of the Mercury and Air Toxics Standards. Last year, electric power sector coal consumption decreased by 7 million short tonnes (Mst), or just under 1%. It will fall further in 2016 when the full impact of coal plant retirements will be felt. At the same time, in its Short Term Energy Outlook, the EIA predicts that gas consumption in the power sector will grow by 8.1% in 2015 and by 1.9% in 2016.
The outlook for the coal sector remains glum as global demand for coal is not expected to rebound over the next few years. Lower international coal prices and higher coal output in other exporting coal countries have made the situation of U.S. coal producers even worse. The 2014 decline in coal exports will continue for 2015 and 2016 the EIA noted, with exports of 97 Mst in 2014 falling to an annual average of 81 Mst in that period.
The outlook comes at the same time market researcher, Wood Mackenzie, warned that around 17% of forecast U.S. coal production for 2015 --162 (MMst) -- is facing idling or closure, as many mines are unable to cover their operating costs plus sustaining capital in the current low price environment.
"Our latest coal market outlook reveals that much of this risked production is in Central Appalachia, where output is mainly operating at negative margin," the company stated. "The region has the highest mining costs in the country, due to years of declining productivity, thinning seams, stringent government regulations and a highly-paid workforce, all taking their toll."
"Overall, the 2015 North American coal market is shaping up to be a repeat of last year. However, instead of producers being held back by poor railroad performance, the upcoming regulations and natural gas prices -- down 32% from a year ago -- will keep demand below current capacity. For prices to rise, either global demand for coal - largely driven by the steel and power sectors - must increase, or the supply of coal must decrease. In reality, the only practical way for the market to rebalance is to cut production. This will need to happen sooner rather than later, as the losses these mines are generating cannot be sustained."
Last month Industrial Info reported that Alpha Natural Resources Incorporated (NYSE:ANR) (Bristol, Virginia) had announced the idling at Highland Mining's Superior, North, and Trace Fork surface mines and a reduction in workforce at its Reylas and Freeze Fork surface mines. The company blamed sustained weak market conditions at home and abroad as well as government regulations that have impacted the Central Appalachian mining industry. For additional information, see February 9, 2015, article - U.S. Coal Continues to Suffer.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and nine international offices, 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. To contact an office in your area, visit the Industrial Info "Contact Us" page.
The Energy Information Administration (EIA) said that the use of coal for electric power will fall by 2.2% this year because of lower natural gas prices and retirements of coal power plants in response to the implementation of the Mercury and Air Toxics Standards. Last year, electric power sector coal consumption decreased by 7 million short tonnes (Mst), or just under 1%. It will fall further in 2016 when the full impact of coal plant retirements will be felt. At the same time, in its Short Term Energy Outlook, the EIA predicts that gas consumption in the power sector will grow by 8.1% in 2015 and by 1.9% in 2016.
The outlook for the coal sector remains glum as global demand for coal is not expected to rebound over the next few years. Lower international coal prices and higher coal output in other exporting coal countries have made the situation of U.S. coal producers even worse. The 2014 decline in coal exports will continue for 2015 and 2016 the EIA noted, with exports of 97 Mst in 2014 falling to an annual average of 81 Mst in that period.
The outlook comes at the same time market researcher, Wood Mackenzie, warned that around 17% of forecast U.S. coal production for 2015 --162 (MMst) -- is facing idling or closure, as many mines are unable to cover their operating costs plus sustaining capital in the current low price environment.
"Our latest coal market outlook reveals that much of this risked production is in Central Appalachia, where output is mainly operating at negative margin," the company stated. "The region has the highest mining costs in the country, due to years of declining productivity, thinning seams, stringent government regulations and a highly-paid workforce, all taking their toll."
"Overall, the 2015 North American coal market is shaping up to be a repeat of last year. However, instead of producers being held back by poor railroad performance, the upcoming regulations and natural gas prices -- down 32% from a year ago -- will keep demand below current capacity. For prices to rise, either global demand for coal - largely driven by the steel and power sectors - must increase, or the supply of coal must decrease. In reality, the only practical way for the market to rebalance is to cut production. This will need to happen sooner rather than later, as the losses these mines are generating cannot be sustained."
Last month Industrial Info reported that Alpha Natural Resources Incorporated (NYSE:ANR) (Bristol, Virginia) had announced the idling at Highland Mining's Superior, North, and Trace Fork surface mines and a reduction in workforce at its Reylas and Freeze Fork surface mines. The company blamed sustained weak market conditions at home and abroad as well as government regulations that have impacted the Central Appalachian mining industry. For additional information, see February 9, 2015, article - U.S. Coal Continues to Suffer.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and nine international offices, 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. To contact an office in your area, visit the Industrial Info "Contact Us" page.
