Core Apps in Tough Times – Makin’ Steam and Coking Coal-a

Coal is having a tough year. Producers must be wondering what else can go wrong. In spite of everything, coal continues to play an invaluable role in supplying US energy and as a raw material in steel manufacture.  Today we take a closer look at where coal comes from and how it is used.

By now nearly everyone knows the US coal industry is on the ropes. In “Old King Coal is Down in the Hole” we learned how coal producers were hurting to the point of closing mines and restructuring. NYMEX Central Appalachian Coal prices have fallen 22 percent so far this year from $69.67/ short ton (ST) on January 3, 2012 to $54.60/ST on Wednesday (October 17, 2012). As natural gas prices fell below $2/MMBtu in April, power generators switched from using coal as a baseload fuel to natural gas on an unprecedented scale (see Talkin ‘Bout My Generation). Since over 90 percent of coal demand comes from power generation, coal consumption fell as a result. World demand for more valuable metallurgical coal has also slumped as China reduced steel output and the European economies continued to court recession. On top of all that, environmental legislation threatens future coal plant construction as well as the life of legacy plants that have to be retro fitted with expensive pollution control hardware to meet higher Clean Air standards.

All of that doesn’t mean the US has given up using coal. As we noted in “Old King Coal” it would take an additional 25 BCF/d of natural gas to replace current coal fired generating capacity completely in the US and that kind of gas volume is simply not in the cards.  . That means coal fired generation is not going away. Coal producers have not given up and are busy looking for new markets. In “Westward Ho!” we noted that coal export markets offer brighter prospects. We listed plans for West Coast coal export terminals aimed at Asian markets. Although none of those west coast plans have yet been approved, the Energy Information Administration (EIA) reports that US coal exports (primarily from the East Coast) are up 37.5 percent year to June 2012 over last year.  

Regardless of current demand woes, the fact remains that the US is sitting on top of the world’s largest recoverable reserves of coal. Just because they aren’t the flavor of the month right now, doesn’t mean these are not useful hydrocarbons. The shale revolution is proof positive it’s not a good idea to write off hydrocarbon resources just because we can’t figure out how to extract and use them economically today. What follows is an overview of where US coal comes from and how it is used, aimed at readers less familiar with the coal industry (with our usual apologies to the experts).    

Sources

In 2011 the US produced about 1.1 billion short tons of coal. [Recall that a million short tons of Powder River Basin coal produce the equivalent energy of 16.4 BCF of natural gas].  US production is spread across three coal-producing regions: Appalachia, Interior and Western (see map below).  More than one-third of the coal produced in the United States comes from Appalachia. West Virginia is the largest coal-producing state in that region. Appalachian coal is used for power generation as well as in the making of iron and steel.

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