Finchannel Short-Term Energy Outlook

Highlights Coal

Consumption. A decline in overall electricity generation, combined with projected increases from natural gas, nuclear, and renewable (hydroelectric and wind) generation sources, are projected to lead to a 4.6-percent decline in coal consumption in the electric power sector this year. The projected electric power sector consumption of 994 million short tons (MMst) in 2009 is the first time since 2002 that annual consumption would be below the billion short ton level. An expected increase in total electricity generation of 1.5 percent in 2010 is expected to lead to a 1.7-percent increase in electric-power-sector coal consumption. Non-power-sector coal consumption, for both steam and coke production, is projected to decline by 33 percent in 2009, reflecting very weak industrial activity (U.S. Coal Consumption Growth Chart).

Production. Production is expected to fall by about 7 percent in 2009 in response to lower total domestic coal consumption, export declines, and high coal inventories. The April 2009 production estimate of 88.3 MMst is the lowest monthly coal production figure since May 2004. Conversely, the estimated March 2009 secondary coal inventories of 183.9 MMst is the highest in over 20 years (secondary inventories were 185.5 MMst in December 1987). Production is projected to increase slightly (0.6 percent) in 2010 as domestic consumption and exports increase with an improving economy (U.S. Annual Coal Production Chart).

Exports. Reductions in global coal demand are expected to reduce U.S. coal exports by about 16.5 million short tons, a 20-percent decrease, in 2009. The projected rebound in global economic activity is expected to increase global coal demand and lead to a 24-percent increase in exports in 2010.

Prices. Despite declines in electricity demand and lower fuel costs, the annual average delivered coal price is projected to increase to $2.16 per million Btu (MMBtu) in 2009 due to a pricing lag between mine-mouth and delivered coal prices caused by long-term coal contracts. Current delivered prices were set when contracts were entered into during a period of high prices for all fuels one year or more ago. Although record increases in spot prices (some well over 100 percent) for several types of coal contributed to the increase in the cost of coal, spot market purchases make up only a small portion of total coal consumed. The average delivered coal price is expected to decline to $1.98 per MMBtu in 2010, as expiring high-priced contracts are replaced.

Source: finchannel.com