From its earliest use in refining metals, to its more regarded use in providing electricity, the abundance of coal has been a consistent source of energy throughout the ages. Worldwide, coal is the most abundant fossil fuel and the dominant source of energy for electricity. Due to increasing regulations in the U.S., specifically and most significant, the Mercury Air Toxin Standards (MATS) has given cause for utilities to look from a budgetary perspective on whether to retrofit plants or shut them down. Currently there are 1,100 operating coal fired units across the country. The coal industry has forecast that around 320 plants will shutter between now and 2017, roughly 29 percent of coal fired units. However, if you look at these shutdowns from an installed capacity perspective, it’s really only 13 percent. In terms of coal consumption while also considering the share of a billion tonne coal market, these 320 shuttered plants represent only eight percent of total US consumption.
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So while coal has lost some of its market share to new regulations and a glut of more affordable natural gas in the United States, pricing for natural gas in 2013 is set to increase making the price of coal, western coal especially, very competitive with natural gas. Coal producers are predicting that consumption of coal will be up 50 million tonnes in the U.S. alone.
“We see coal taking back a very meaningful piece of market share this year because of competitive pricing,” said Deck Stone, Senior Vice President of Strategy and Public Policy, Arch Coal, “In 2008 coal was near 50 percent of power generation in the U.S., by 2020 we see that settling out at around 40 percent. Most of the market share that we were going to lose has already been lost.”
However, that story changes dramatically as you look overseas. China and India alone are expecting 100 new coal plants to go online by 2017. South Korea’s imports have risen nearly 45 percent since 2007 and Europe has increased coal imports as well. As the world population increases and developing nations middle classes continue to grow, the demand for cheap and abundant fuel will grow.
China is a prime example of explosive growth. Over the last decade China’s middle class has grown to 300 million people. This increases demand on every sector of their economy, including manufacturing, which is currently running at full tilt. Increases in electricity consumption are at the heart of each growing sector and China can’t keep up. Last year, Beijing experienced a week-long traffic jam from trucks transporting coal from the countries coal-rich Shanxi Province because of the lack of transportation infrastructure. This makes international seaborne coal very attractive. U.S. coal companies have been exporting 900 million tonnes of coal per year to China.
Even when the proper infrastructure is in place, these companies will still export 100 to 200 million tonnes into China each year, maintaining China’s status as the number one net user of coal. Its demand has forced Chinese coal companies to cut costs in an effort to undermine foreign coal producers. “They’re not paying workers,” said Xizhou Zhou, Director, China Energy, HIS, “and they continue to develop new ways to cut costs.”
Markets like South America and other Asian nations like Vietnam and Thailand are growing too. This surge in demand for coal in growing populations will only increase as more electricity is consumed. The International Energy Agency said that by 2017, India may import more coal then China who is currently import about half of the world’s coal.
The market is there. Although the market for coal in the U.S. has plateaued due to increased regulations and concerns over environmental degradation, growing economies looking for enhanced quality of life filled with experiences and luxuries we in the Western world take for granted will continue to seek coal for electricity and manufacturing.
Just because regulations are imposed here domestically, doesn’t mean they are standardized abroad. Even with the shuttering of nuclear facilities, increasing regulations and concerns of foreign imports for oil and gas, as well as coal reductions in favor of more renewable sources of energy; American’s continue to consume electricity at a pretty flat rate. American’s are also concerned with pricing, deals. Its what has made the U.S. the largest consumer of energy in the world, its affordable.
“Everyone is looking at cheap gas now but what will they be looking at in a few years from now? It’s difficult to have people think 20 and 30 years out but that’s what we plan for,” said James Rogers, Chairman, President and CEO, Duke Energy. Utility companies will continue to dispatch the most affordable fuels in front of another, regardless of type, in order to satisfy customers and keep rates low.
The future of coal really depends on consumers, regardless of their environmental or political stance. Because when consumers come home at night they expect to turn on their lights, be sheltered, clothed and fed; the basic tenants to a quality of life each person in this country has become accustomed to and to which they are hard pressed to give up. As long as there is a need for electricity around the world, there will be a future for coal.
While Americans are trying to reduce the amount of coal in his or her proverbial back yard, it doesn’t mean that same coal won’t exist in someone else’s. “We are wounded as an industry and people are taking shots at us, but we’re a proud industry and we know we provide a valuable service to society,” said Jack Porco, President and COO, Xcoal.