The beaten and bruised U.S. coal industry got up off the floor from the body blows of EPA’s regulations and got back in the race as an export champion serving energy hungry Asian markets. Fourth quarter 2011 U.S. coal exports increased 6.6% from the Q3: 2011 and 32.6% from Q4: 2010 to 27.7 mst with exports going mostly to Europe and Asia continuing to climb.
Meanwhile, total U.S. coal consumption decreased by of 18.8% from third quarter 2011 and 9.4% from fourth quarter 2010 to 227.1 metric short tonnes (mst). This was the lowest since second quarter 1995 according to the US EIA Coal Quarterly Report. The decrease in coal consumption for power generation to 208.6 mst was due to mild weather and resulting high stockpile levels combined with strong competition from lower priced natural gas in the fourth quarter of 2011. US coal imports also fell to their lowest level since Q2: 2000. The United States imported 2.7 mst of coal in Q4: 2011, but that was 24.7% lower than Q3: 2011 and 43.9% lower than Q4: 2010.
America now has so much natural gas that prices have fallen to near record lows and producers line up to export LNG. The Federal Energy Regulatory Commission approved a certificate of public convenience and necessity to build a liquefied natural gas (LNG) terminal on the Texas-Louisiana Gulf coast to export excess US natural gas from all the shale gas development growth. Cheniere Energy won FERC approval to retrofit its Sabine Pass natural gas terminal designed to accept LNG imports so that it can export LNG. FERC said there were seven more pending requests for export terminal certificates. The reason is that cheap American natural gas exports can be turned into higher priced LNG sold at premium prices in the same Asian markets buying U.S. coal exports and Canadian oil sands crude exports.
So what does all this mean?
Natural gas is the fuel of choice with low prices and abundant domestic supply reliability. The growth of natural gas from shale E&P is widespread across the US made possible by horizontal drilling and hydraulic fracturing. This shale development is largely taking place on private lands under state by state regulation. While EPA seeks to find a reason to regulate fracking so far it recognizes it risks the wrath of Congress and states benefiting from the job creating, revenue producing, confidence building growth of natural gas many markets.
Low Gas Prices Encourage More Oil Drilling. But low natural gas prices are their own worst enemy reducing the margins for producers so the switch is on as more producer shift their focus from natural gas to oil and petroleum liquids. The same plays that have brought us natural gas can, in many cases, bring us oil and valuable petroleum liquids from the same private lands development reducing oil imports.
The markets are ruthlessly efficient at rationalizing changing supply and demand conditions. As new rules and low gas prices undermine the economics for coal in US markets, that coal is finding new markets abroad in an energy hungry world. Low gas prices are also moderating the E&P activities in natural gas causing producers to shift their drilling to higher prices oil and liquids. Amazingly, no intervention from the government is required for rational economic behavior to restore equilibrium. Think of that!