Title: Autumn 2004, the Outlook for Eastern Coal Demand, Supply, and Prices
1Autumn 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
2Agenda
- 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
3What 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
4EIA Average Weekly Coal Commodity Spot Prices (A
Frequent Cause for Concern)
Source Coal News and Markets Report Platts
Coal Outlook
5EIA 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
6Recent 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.
7U.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
8U.S Coal Vital Statistics, 2001-2004
Source Quarterly Coal Report, September 2004
9Recent 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.
10Recent Coal Price and Supply Issues U.S. Coal
Imports and Exports Survey Data
Imports
Source Quarterly Coal Report, September 2004
11Observations 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
12U.S. Coal Production - Rebounding
Production forecast to rise 3.4 in 2004, 3.5 in
2005
Source Short Term Energy Outlook, October 2004
13Observations . . .
- 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
14Recent Coal Prices and Supply Issues Recoverable
Reserves at Operating Mines
Source Annual Coal Report, September 2004, and
previous versions
15Observations . . .
- 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
16Observations . . .
- 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
17Observations . . . 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
18Observations . . .
- 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
19Observations . . .
- 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
20Looking 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.
21Looking 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
22Looking 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
23EIA 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
24Preliminary Winter Weather Forecast, Released
10/06/2004
Source NOAA U.S. Winter Outlook, October 6, 2004
25Integrated 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
26Integrated 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
27Integrated Energy Forecasts -U.S. Coal Demand
Source Short Term Energy Outlook, October 2004
28Integrated Energy Forecasts -Total Natural Gas
Demand Growth Patterns
Source Short Term Energy Outlook, October 2004
29Integrated Energy Forecasts -Total U.S.
Electricity Demand Patterns
Source Short Term Energy Outlook, October 2004
30Long-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
31Long-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
33Long-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
34Long-Term Energy Projections Coal Mining Labor
Productivity, 1990-2025 (short tons per miner
per hour)
Source Annual Energy Outlook 2004, January 2004
35Future 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
36Future 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
37Contact 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/