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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--As coal continues to fight losing battles with natural gas and environmental regulators in the U.S., Arch Coal Incorporated (NYSE:ACI) (St. Louis, Missouri) signed a deal with Kinder Morgan Energy Partners LP (NYSE:KMP) (Houston, Texas) to increase coal exports. Kinder Morgan agreed to invest $140 million to expand coal-handling export facilities along the Gulf Coast to take coal supplied by Arch under a long-term agreement.
To expand its export capacity on the Gulf Coast, Kinder Morgan will install a new shiploader and a railcar loop track to handle three 135-car unit trains at its Deepwater Terminal in Houston. The terminal currently can handle 4.5 million tons per year of petroleum coke. Following completion of the project in mid-2014, the terminal will have throughput capacity of 10 million tons of coal per year.
"The demand for export coal continues to grow, and we are pleased to offer Arch and other customers options in various markets through our multi-location terminal network," Jeff Armstrong, president of Kinder Morgan Terminals, said in a January 24 statement announcing the transaction. "We are also extending existing long-term coal agreements with Arch at our upriver terminals (Cora, Cahokia and Kellogg) in Illinois."
"This strategic partnership with Kinder Morgan, a company with a proven track record of running successful terminal operations, will allow Arch to significantly increase our participation in the global coal market," said John W. Eaves, Arch's president and chief operating officer. "This dedicated capacity directly underpins our long-term strategy to grow Arch's coal exports by fourfold in the next decade, and is consistent with our view that a global coal supply shortfall will persist over that time frame." The companies hope to begin initial site work on the project in May.
Arch, one of the largest coal suppliers in the U.S., has significant deposits of Eastern and Western coal. But persistent low natural gas prices, high operating costs, relatively low coal prices, and environmental regulations of power-plant emissions, have combined to make the U.S. a less attractive market. Most analysts see coal as continuing to be the largest single fuel for electric generation in the U.S. over the coming decade. But most analysts predict coal will continue to lose market share to natural gas and renewables.
Arch and other coal suppliers have been trying to develop export terminals in the Northwest, as well as expand existing facilities elsewhere. Coal demand continues to rise in China, India and other overseas markets. Arch and KMP also are negotiating a coal-supply deal tied to exports from Kinder Morgan's East Coast terminals. Arch reportedly is seeking to quadruple its coal exports over the next decade.
U.S. coal exports rose from 84 million tons in 2010 to 108 million tons last year. Exports could reach 118 million tons in 2012, industry experts predicted. But hitting or exceeding that goal may require progress on West Coast coal-export terminals that environmentalists have strongly opposed. In recent years, a shortage of port capacity has been the main factor limiting coal exports.
Subsequent to its Jan. 24 announcement, Arch reported disappointing 2011 earnings, and said it would idle coal-face operations at its Dugout Canyon underground mine in Utah in the first half of 2012. Earlier, it reduced the workforce at several operations in eastern Kentucky, costing an estimated 105 workers their jobs. These and other cutbacks mean Arch will produce at least 5 million fewer tons of thermal coal this year. Last year, Arch produced and sold 155.3 million tons of coal, a 4% decline from 2010 production of 161.3 million tons.
In its earnings announcement, Steven Leer, Arch's chairman and chief executive, said the company was facing a difficult U.S. coal market: Exceptionally mild winter, a soft economy and natural gas prices at a 10-year low have combined to lower demand for thermal coal by 8% so far this year.
"We'll further evaluate market conditions as the year progresses to make appropriate adjustments as necessary, including potentially pursuing further supply rationalization," Leer told Wall Street analysts on a conference call. "We expect to see more supply cuts in Appalachia and elsewhere in the near term," he said. Leer added Arch was approaching 2012 "with a cautious view, due to domestic thermal market concerns." He projected that overall U.S. coal consumption could fall by about 50 million tons this year compared to 2011 levels.
"Given current weak coal market conditions, we remain acutely focused on managing our controllable costs, eliminating discretionary capital spending across the organization and delivering additional synergies, including further supply rationalization," John Eaves, Arch's president and chief operating officer, said in the earnings statement.
For more on Arch's 12011 earnings announcement, see February 13, 2012, article - Arch Coal Exceeds Industry Performance in 2011 as Acquisition, Exports Keep Fires Burning. For more on the trend of domestic coal producers seeking to boost exports, see August 2, 2011, article - Strong Coal Export Markets Drive U.S. Capital Spending, M&A.
Bloomberg News reported that U.S. coal demand has fallen to a 20-year low as warm weather and a weak economy have cut into electric demand, and low natural gas prices have led to increased fuel switching at power generators. Coal is expected to lose two percentage points of market share in the electric generation market this year, which will bring its share of the electric generation market to a level last seen in 1992, the news agency said, citing the U.S. Department of Energy (DoE) (Washington, D.C.).
The price of Appalachian coal, the U.S. benchmark grade, sank 15% in January and is down 26% from its 2011 high, Bloomberg reported. Coal is selling for less than $60 per ton this year on the New York Mercantile Exchange--nearing a two-year low. Meanwhile, natural gas for power plants costs about $1 per million British thermal units (MMBtu) less than coal, according to futures prices and data compiled by Bloomberg News.
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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.
To expand its export capacity on the Gulf Coast, Kinder Morgan will install a new shiploader and a railcar loop track to handle three 135-car unit trains at its Deepwater Terminal in Houston. The terminal currently can handle 4.5 million tons per year of petroleum coke. Following completion of the project in mid-2014, the terminal will have throughput capacity of 10 million tons of coal per year.
"The demand for export coal continues to grow, and we are pleased to offer Arch and other customers options in various markets through our multi-location terminal network," Jeff Armstrong, president of Kinder Morgan Terminals, said in a January 24 statement announcing the transaction. "We are also extending existing long-term coal agreements with Arch at our upriver terminals (Cora, Cahokia and Kellogg) in Illinois."
"This strategic partnership with Kinder Morgan, a company with a proven track record of running successful terminal operations, will allow Arch to significantly increase our participation in the global coal market," said John W. Eaves, Arch's president and chief operating officer. "This dedicated capacity directly underpins our long-term strategy to grow Arch's coal exports by fourfold in the next decade, and is consistent with our view that a global coal supply shortfall will persist over that time frame." The companies hope to begin initial site work on the project in May.
Arch, one of the largest coal suppliers in the U.S., has significant deposits of Eastern and Western coal. But persistent low natural gas prices, high operating costs, relatively low coal prices, and environmental regulations of power-plant emissions, have combined to make the U.S. a less attractive market. Most analysts see coal as continuing to be the largest single fuel for electric generation in the U.S. over the coming decade. But most analysts predict coal will continue to lose market share to natural gas and renewables.
Arch and other coal suppliers have been trying to develop export terminals in the Northwest, as well as expand existing facilities elsewhere. Coal demand continues to rise in China, India and other overseas markets. Arch and KMP also are negotiating a coal-supply deal tied to exports from Kinder Morgan's East Coast terminals. Arch reportedly is seeking to quadruple its coal exports over the next decade.
U.S. coal exports rose from 84 million tons in 2010 to 108 million tons last year. Exports could reach 118 million tons in 2012, industry experts predicted. But hitting or exceeding that goal may require progress on West Coast coal-export terminals that environmentalists have strongly opposed. In recent years, a shortage of port capacity has been the main factor limiting coal exports.
Subsequent to its Jan. 24 announcement, Arch reported disappointing 2011 earnings, and said it would idle coal-face operations at its Dugout Canyon underground mine in Utah in the first half of 2012. Earlier, it reduced the workforce at several operations in eastern Kentucky, costing an estimated 105 workers their jobs. These and other cutbacks mean Arch will produce at least 5 million fewer tons of thermal coal this year. Last year, Arch produced and sold 155.3 million tons of coal, a 4% decline from 2010 production of 161.3 million tons.
In its earnings announcement, Steven Leer, Arch's chairman and chief executive, said the company was facing a difficult U.S. coal market: Exceptionally mild winter, a soft economy and natural gas prices at a 10-year low have combined to lower demand for thermal coal by 8% so far this year.
"We'll further evaluate market conditions as the year progresses to make appropriate adjustments as necessary, including potentially pursuing further supply rationalization," Leer told Wall Street analysts on a conference call. "We expect to see more supply cuts in Appalachia and elsewhere in the near term," he said. Leer added Arch was approaching 2012 "with a cautious view, due to domestic thermal market concerns." He projected that overall U.S. coal consumption could fall by about 50 million tons this year compared to 2011 levels.
"Given current weak coal market conditions, we remain acutely focused on managing our controllable costs, eliminating discretionary capital spending across the organization and delivering additional synergies, including further supply rationalization," John Eaves, Arch's president and chief operating officer, said in the earnings statement.
For more on Arch's 12011 earnings announcement, see February 13, 2012, article - Arch Coal Exceeds Industry Performance in 2011 as Acquisition, Exports Keep Fires Burning. For more on the trend of domestic coal producers seeking to boost exports, see August 2, 2011, article - Strong Coal Export Markets Drive U.S. Capital Spending, M&A.
Bloomberg News reported that U.S. coal demand has fallen to a 20-year low as warm weather and a weak economy have cut into electric demand, and low natural gas prices have led to increased fuel switching at power generators. Coal is expected to lose two percentage points of market share in the electric generation market this year, which will bring its share of the electric generation market to a level last seen in 1992, the news agency said, citing the U.S. Department of Energy (DoE) (Washington, D.C.).
The price of Appalachian coal, the U.S. benchmark grade, sank 15% in January and is down 26% from its 2011 high, Bloomberg reported. Coal is selling for less than $60 per ton this year on the New York Mercantile Exchange--nearing a two-year low. Meanwhile, natural gas for power plants costs about $1 per million British thermal units (MMBtu) less than coal, according to futures prices and data compiled by Bloomberg News.
View Plant Profile - 1033884 3048841
View Project Report - 300060847
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.
