Westward Ho! - Head ‘Um up and Move that Coal out to Asia

In the wake of competition from historically low natural gas prices and anti carbon environmental legislation the domestic US coal industry is reeling but it remains competitive in an expanding world market. In today’s blog we dig into projects for the export of Powder River Basin coal from terminals on the West Coast destined for markets in Asia.

When we last looked at the coal market in “Old King Coal is Down in a Hole – Is There a Future for US Coal Producers?”, we learned how US coal consumption is falling as a result of natural gas competition for power burn. Coal production is down 6 percent this year so far below 2011 and coal companies are closing down uncompetitive mines. Although NYMEX Appalachian coal prices have risen some from lows in June, they are still down 17 percent so far this year.

About the only spark of hope for coal producers right now is the export market. A couple of weeks back Kentucky-based Booth Energy Group and River Trading Co. announced a 25-year, $7 billion agreement with India's Abhijeet Group to export 9 million short tons (MMST) of coal a year to India from West Virginia and Kentucky. That would represent 8 percent of last year's record 107 MMST total US coal exports. Other coal producers see similar good prospects in overseas markets. In a recent investor presentation (copy here) the second largest US coal producer Arch Coal outlined plans to play a larger role in the expanding seaborne coal trade. Arch exported 7 MMST of coal in 2011 into a world market the company estimates to be 1 billion short tons (BST). Arch expects the seaborne coal trade to double to 2 BST by 2020 and is looking to increase its own exports to 30 MMST by the end of this decade.

Arch perceives the global coal market to be soft at the moment because of the recession but projects a 50 percent increase by 2020. As we have seen with natural gas (see Export Boom or Import Echo – Do US LNG Export Schemes Make Sense?), Asia is where demand for energy imports is growing and that is true for coal as well as for gas. China and India are expected to import 1.5 BST/y between them by 2030. 

There is certainly no lack of coal available for US producers to export. The US holds the world’s largest recoverable reserves of coal – estimated in 2011 by the Energy Information Administration at 485 BST. The most prolific coal mining area in the US is the Powder River Basin (PRB) in Montana and Wyoming with over 423 MMST mined last year - 40 percent of all coal mined in the country. Most US coal exports last year were from East Coast ports, with only 8 MMST exported from the West Coast (closer to the PRB). There are currently no US coal export terminals on the West Coast.

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