Arch Coal (NYSE: ACI) thinks the coal industry could lose 65 million tons per year of coal usage at U.S. power plants to shut by 2018, but could gain as much as 100 million tons per year of coal consumption through higher capacity factors at the surviving coal plants and at new plants.
In a presentation filed May 22 at the SEC, Arch said the coal plant likely to run after 2018 would burn about 865 million tons per year, with that surviving capacity coming to 280 GW at 733 units. Likely to retire by 2018 would be 45 GW of coal capacity at 363 units, which burn about 65 million tons per year.
Much of this optimism is based on the fact that the plants and units to be shut due to new clean-air restrictions are old, relatively small and little-used, while the newer, bigger, more efficient facilities will survive, at least for a few more years.
The company said incremental increases in natural gas prices would help restore some coal consumption, Arch noted. It estimated that since 2008, low natural gas prices have cut a total of 70 million tons of coal market, with by far most of that loss, about 44 million tons, coming at the expense of Central Appalachia coal, with lesser market losses for Powder River Basin and western bituminous coals. At gas prices above $3/mmBtu, about half of that market loss for coal can be regained, Arch noted. A rebound in the U.S. industrial sector could add back another 95 million tons per year of coal demand, Arch said.