Autumn 2004, the Outlook for Eastern Coal Demand, Supply, and Prices - PowerPoint PPT Presentation

1 / 37
About This Presentation
Title:

Autumn 2004, the Outlook for Eastern Coal Demand, Supply, and Prices

Description:

Reduced WV coal truck weight limits, strict fines, and higher license fees in ... in coal hedge funds growing - trader positions assume oil prices and natural ... – PowerPoint PPT presentation

Number of Views:120
Avg rating:3.0/5.0
Slides: 38
Provided by: EIA1
Category:

less

Transcript and Presenter's Notes

Title: Autumn 2004, the Outlook for Eastern Coal Demand, Supply, and Prices


1
Autumn 2004, the Outlook for Eastern Coal
Demand, Supply, and Prices
  • Rich Bonskowski
  • Energy Information Administration
  • Presented at TVA Fall Industrial Conference
  • Nashville, Tennessee, October 14, 2004

2
Agenda
  • What is EIA and what does it do?
  • Recent coal prices and supply issues
  • Observations about coal prices and supplies
  • Looking forward
  • EIA integrated energy forecasts
  • U.S. coal markets in the future

TVA Cumberland Coal-Fired Plant
3
What Is EIA?
  • Statistical agency of U.S. Department of Energy,
    created in 1977
  • Provides policy-independent data, forecasts, and
    analyses
  • DOE approval not required for EIA products
    substance of technical reports independent of any
    other U.S. Government approval

4
EIA Average Weekly Coal Commodity Spot Prices (A
Frequent Cause for Concern)
Source Coal News and Markets Report Platts
Coal Outlook
5
EIA Products
  • Integrated Energy Forecasts, short term and
    extended
  • Data reports - Petroleum, Natural Gas, Coal,
    Electricity, Nuclear, and Renewable Energy
  • Analysis reports on fuel-specific or hot-issue
    topics
  • Service reports on alternative scenarios, for
    Congress, other Federal agencies

6
Recent Coal Price and Supply Issues
  • Coal demand has increased, but not enough to
    account for recent supply problems.
  • More importantly, coal demand has been
    inconsistentthe major buyers were unable or
    unwilling in 2003 and early 2004 to replenish
    inventories.
  • Why? Because coal prices had been inching down
    for so long, buyers were reluctant to commit too
    soon and miss the even lower prices that were
    sure to come.

7
U.S. Coal Markets, Past and Future Average Mine
Price of Coal, 1990-2025, with Long-Term
Projections (2002 dollars/short ton)
Source Annual Energy Outlook 2004, January 2004
8
U.S Coal Vital Statistics, 2001-2004
Source Quarterly Coal Report, September 2004
9
Recent Coal Price and Supply Issues
  • Uneven demand was exacerbated by Chinas
    unreliable trading practices in 2003/2004.
  • Unmet deliveries of Chinese coal and
    metallurgical coke, and low U.S. exchange rates,
    raised demand for U.S. coal in Japan, Korea,
    Taiwan, India, and other countries.

10
Recent Coal Price and Supply Issues U.S. Coal
Imports and Exports Survey Data
Imports
Source Quarterly Coal Report, September 2004
11
Observations about Coal Markets and Prices (from
EIA data, industry analysts and newsletters)
  • Coal is in short supply, including in the
    Southeast, but supplies are starting to improve
    for 2005
  • Thermal coal prices could subside in 2005, but do
    not expect to see 2003 prices
  • Metallurgical coal prices expected to remain high
    in 2005, decline some in 2006
  • Coal demand is expected to grow

12
U.S. Coal Production - Rebounding
Production forecast to rise 3.4 in 2004, 3.5 in
2005
Source Short Term Energy Outlook, October 2004
13
Observations . . .
  • Why coal supplies are short
  • Bad timing higher than usual rate of mines
    closing (2003-2005) in the East due to bad
    geology or reserve depletion several major
    mines suspended mining due to hazards
  • More bad timing deferred demand many big
    customers (electric power generators) delayed
    full replenishment of coal inventories in 2003
    and early 2004

14
Recent Coal Prices and Supply Issues Recoverable
Reserves at Operating Mines
Source Annual Coal Report, September 2004, and
previous versions
15
Observations . . .
  • Why coal supplies are short
  • Economics chronic low contract coal prices
    drove six sizable bituminous producers to
    bankruptcy protection (2002-2004), some
    production lost, some contracts canceled or
    renegotiated
  • Financial - banks have declined new loans to
    mines based on the record of low coal prices,
    growing mining costs, low profits, multi-year
    permitting processes, and past bad debts with
    merchant generators

16
Observations . . .
  • Why coal supplies are short
  • Externalities Demand in international Atlantic
    market captured some South American coal being
    eyed by coastal southeastern U.S. utilities.
  • Externalities China reneging on coal and met
    coke exports in late 2003 and 2004 and
    disruptions in Australian exports sent Japan,
    India, Korea, and others to U.S. for coal
    diverted 6.5 mmst to exports
  • 5.5 mmst exports 1.0 mmst steam coal-met coal
    conversion loss

17
Observations . . . Seven-Month U.S. Coal Exports
to Asia, Africa Oceania, 2004 vs 2003
Jan-July 2004
Jan-July 2003
Source National Mining Association, September
2004
18
Observations . . .
  • Why coal supplies are short
  • Permitting Due to 2004 decision in valley fill
    lawsuit, Corps of Engineers stopped processing
    multiple permits under National criteria, causing
    delays in WV region
  • Skilled labor engineers and miners with needed
    technical skills left for better pay and
    conditions in 1990s most not returned
  • Skilled labor other experienced miners are
    retiring younger generation left coalfields

19
Observations . . .
  • Why coal supplies are short
  • Reduced WV coal truck weight limits, strict
    fines, and higher license fees in 2004 severely
    curtailed regional deliveries, especially to
    river docks
  • Because of increased national demand for trains
    in improving economy, recent rail employee
    attrition, and producers diverting coal to export
    docks, coal deliveries chronically delayed in 2004

20
Looking Forward
  • Thermal spot coal prices could subside
  • The 2002-2004 coal producer bankruptcies are
    winding down, best properties being acquired by
    better-financed companies
  • Customers starting to believe higher coal prices
    are real, signing 40-44 contracts
  • High spot prices do affect baselines for new
    contracts, less effect on long-term averages
  • Backwardation in forward prices
  • Several new mines in the East are opening, or old
    mines reopening, in late 2004

Backwardation describes a market in which spot
prices exceed forward prices. Typically, forward
prices increase in energy markets. Backwardation
in prices usually corresponds with an immediate
shortage.
21
Looking Forward . . .
  • Metallurgical coal prices could subside later
  • International met coal prices have been what the
    traffic will bear, certainly as high as 150 per
    metric tonne in U.S., expect 70 and 80/short
    ton f.o.b. mine
  • International demand continues high, e.g., Massey
    in 03 shipped 5 mmst of met coal, expects 7-8
    mmst in 04, 8-10 mmst in 05
  • Suppliers have responded low-vol swing mines,
    Pinnacle mine back on line, new mines in
    Appalachia and Canada

22
Looking Forward . . .
  • Coal demand projected to grow
  • EIA projects coal consumption will grow by 3.4
    in 2004 and another 3.5 in 2005
  • A colder-than-normal winter expected in Southeast
  • Interest in coal hedge funds growing - trader
    positions assume oil prices and natural gas
    prices will stay high and even interruptible gas
    supplies may be insufficient for expanding
    electricity generation

23
EIA Integrated Energy Forecasts -For Example,
Winter Fuels Forecast, Released 10/06/2004,
Covers October 2004 March 2005
  • Though targeted to residential fuels, gives
    important insights
  • Higher prices for natural gas, heating oil, and
    electricity
  • Colder winter in Southeast
  • At start of season natural gas inventories
    slightly ahead of last year

24
Preliminary Winter Weather Forecast, Released
10/06/2004
Source NOAA U.S. Winter Outlook, October 6, 2004
25
Integrated Energy Forecasts -EIA Winter Fuels
Forecast, Released 10/06/2004
  • Total electricity demand to increase due to
    economic growth, plus weather
  • Coal-fired generation to grow 2.6 over last
    winter
  • Coal consumption to increase by 12.7 mmst over
    last winter
  • Power-sector coal stocks on October 1 estimated
    as 5.3 mmst lower than last year

26
Integrated Energy Forecasts -EIA Winter Fuels
Forecast, Released 10/06/2004
  • Winter coal production, however, projected to be
    32.1 mmst higher than last year
  • Though spot coal prices are up 60 (Big Sandy),
    average prices to electric utilities include
    long-term contracts, projected to rise 3.2

27
Integrated Energy Forecasts -U.S. Coal Demand
Source Short Term Energy Outlook, October 2004
28
Integrated Energy Forecasts -Total Natural Gas
Demand Growth Patterns
Source Short Term Energy Outlook, October 2004
29
Integrated Energy Forecasts -Total U.S.
Electricity Demand Patterns
Source Short Term Energy Outlook, October 2004
30
Long-Term Energy Projections (to 2025)
  • Electricity demand will rise
  • Natural gas prices in real dollars will rise
  • Coal mining productivity will improve further,
    keeping coal prices relatively low
  • Emission caps will shift even more demand to the
    West
  • Industrial coal demand and coal exports decline,
    coal imports rise

31
Long-Term Energy Projections Coal Production by
Region, 1970-2025 with Long-Term Projections
(million short tons)
Source Annual Energy Outlook 2004, January 2004
32
Long-Term Energy Projections Coal Production by
Sulfur Content, 2002, 2010, and 2025 (million
short tons)
Source Annual Energy Outlook 2004, January 2004
33
Long-Term Energy Projections U.S. Coal Imports
and Exports, 2002 and Projections to 2010 and 2025
Million Short Tons
Source Annual Energy Outlook 2004, January 2004
34
Long-Term Energy Projections Coal Mining Labor
Productivity, 1990-2025 (short tons per miner
per hour)
Source Annual Energy Outlook 2004, January 2004
35
Future Pressures for Higher Coal Prices
  • New mines in Appalachia will require greater
    investmentmountaintop mines, deeper mines,
    thinner beds longwall reserves dwindling
  • EIA forecasts slowly increasing natural gas
    prices, even with 4 new LNG terminals and more
    unconventional and domestic gas from Alaska
  • Dominant coal companies are determined to be more
    consistently more profitable
  • Down to four major railroads their investors
    expended a lot in mergers and infrastructure and
    assert that increases in revenue are overdue

36
Future Pressures for Higher Coal Prices
  • U.S. economy improving
  • China will continue to curtail exports and tie up
    ocean shipping for a year or more
  • Recent rail congestion and delays a trend?
  • Farther out, coal synfuel tax advantage due to
    expire at the end of 2007
  • Controversial EPA regulations for mercury and
    fine particulates

37
Contact EIA for further information
  • Richard F. Bonskowski, 202-287-1725
  • richard.bonskowski_at_eia.doe.gov
  • EIAs National Energy Information Center,
    202-586-8800, infoctr_at_eia.doe.gov
  • EIA Website http//www.eia.doe.gov/
Write a Comment
User Comments (0)
About PowerShow.com