Based on estimates for the first quarter of 2013, U.S. coal production has continued to decline, with total production down 9.9 million tons from the previous quarter and 22.7 million tons from the same period in 2012.
The largest year-over-year decline was in the Western region, where production fell by 17.3 million tons (12%), said the U.S. Energy Information Administration in its latest Short Term Energy Outlook released April 9. Smaller declines were experienced in the Interior (2%) and Appalachian (6%) producing regions.
EIA projects total coal consumption will increase from 889 million tons in 2012 to 948 million tons in 2013 and 957 million tons in 2014. EIA expects consumption in the electric power sector to increase over that forecast period as a result of higher electricity demand and higher natural gas prices.
Coal production is expected to increase by 0.5% in 2013 as primary and secondary inventory draws, combined with an increase in coal imports, meet most of the growth in consumption. Coal production is forecast to grow by 2% in 2014.
Coal exports totaled 126 million tons in 2012, surpassing the previous peak of 113 million tons exported in 1981. EIA expects the U.S. will export 107 million tons in 2013 and 109 million tons in 2014. “Continuing economic weakness in Europe (the largest regional importer of U.S. coal), falling international coal prices, and increasing production in other coal-exporting countries are the primary reasons for the expected decline in U.S. coal exports,” EIA added.
Delivered coal prices to the electric power industry increased steadily over an 11-year period through 2011, when the delivered coal price averaged $2.39/MMBtu (a 5% increase from 2010). The delivered coal price averaged $2.40/MMBtu in 2012, and EIA forecasts average delivered coal prices of $2.41/MMBtu in 2013 and $2.45/MMBtu in 2014.
EIA expects that natural gas consumption will average 70.3 Bcf/d and 70.1 Bcf/d in 2013 and 2014, respectively. Forecasts for closer-to-average winter temperatures in 2013 and 2014 (compared with the record warm temperatures in 2012) will lead to increases in natural gas used for residential and commercial space heating. The projected increase in natural gas prices contributes to a decline in natural gas used for electric power generation from 25.0 Bcf/d in 2012 to 22.9 Bcf/d in 2013 and 22.8 Bcf/d in 2014.
Natural gas spot prices averaged $3.81/MMBtu at the Henry Hub in March 2013, up nearly 48 cents from the $3.33/MMBtu average seen the previous three months. EIA expects the Henry Hub price will increase from an average of $2.75/MMBtu in 2012 to $3.52/MMBtu in 2013 and $3.60/MMBtu in 2014.
It is when gas prices are in the $3-$4/MMBtu range that coal, depending on the region where the coal is produced, generally starts to break even with gas in terms of power generation costs, averting any major coal-to-gas switching by power generators. Powder River Basin coal-fired plants can compete on the low end of that price scale, with other regions like the Illinois Basin coming in above that, in the mid-range, and Central Appalachia coals competing best at the plus $4/MMBtu gas level.