U.S. Coal Stockpile to Hit 40-Year High as Power Users Turn to Gas

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--Electric power demand for coal will drop 13% to 733 million tons, and coal-fired generation will fall 14%, the U.S. Energy Information Administration (EIA) reported in its latest Short Term Energy Outlook. Although the EIA lowered expectations for natural gas-fired consumption and use, the message remained that coal is losing ground to gas and some renewable resources. Coal's share of total generation will drop to 38% this year, down from 43% in 2011.

Natural gas will account for 30% of U.S power market output, compared with 25% last year. Renewable energy sources will make up 13% of power generation.

Other sources observing the coal sector having starker messages. Following the recent wave of fuel switching to natural gas, consolidation and declining output in Central Appalachia, a region that has been beset by rising production and compliance costs, could prompt marginal producers to close their doors or sell out, reports Seeking Alpha.

Peabody Energy Corporation (NYE:BTU) (St. Louis, Missouri) and Alpha Natural Resources (NYSE:ANR) (Abingdon, Virginia) both forecast that U.S. coal production could decline by at least 100 million tons to balance supply and demand. Xinergy Limited (OTC:XRGYF) (Knoxville, Tennessee), which operates primarily in Central Appalachia, estimated that mining companies would need to cut output by 150 million tons.

EIA, while not specifying reasons for changing its 2012 coal outlook, lowered expectation for total energy consumption by 0.4% and kept its generation figure unchanged. In its 2013 forecast, EIA said that higher natural gas costs at the end of 2012 and throughout 2013 will shift some market share back to coal. Coal-fired generation will increase 2.7% next year to 4.17 billion kilowatt hours per day. Electric power demand for coal will increase by 0.5%.

In comparative terms, EIA boosts coal exports and production, as well as prospects for 2012 and 2013. Seaborne shipments will fall to 106.2 million tons in 2012 and 97.4 million tons in 2013. This is 6.1% higher that the agency forecast last month, while the forecast for next year is up by 0.3%.

Even with the increased expectation for coal use, stockpiles at U.S power companies are likely to reach a record high and will exceed levels for every year going back to 1973, according to EIA data.

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