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Coal demand has hit rock bottom: Study

Reports of coal’s death are greatly exaggerated, according to a new study from consultants at ICF International.

Much has been made about the possible decline of coal at a time when the United States is awash in cheap natural gas and proposed federal pollution rules are threatening coal.

But ICF projects that 2014 actually will be coal producers’ weakest year, and going forward, demand for the energy source will increase and then plateau.

In 2015, the Environmental Protection Agency is scheduled to finalize federal rules targeting carbon dioxide emissions at existing coal power plants. However, the consulting firm expects that the new emissions standards will be flexible and will limit the number of coal plants that go offline.

At the same time, ICF says U.S. coal will compete in international markets as a source of fuel for power generation abroad.

Exporting US coal

Coal exports from the United States reached a record high in 2012, at 126 million tons, in part because cheap natural gas started to displace coal as a source of power at home.

Currently, there are seven new or proposed coal export terminals planned for the Pacific Northwest, along with five terminals in the works on the Gulf Coast in Louisiana and Alabama.

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Many of the planned export facilities are banking on Asia — where energy prices are higher than in the U.S. — to be a leading customer for coal. China and Japan are expected to increase their coal consumption in coming years, according to the report. It also projects South Korea, India and Taiwan will see their demand for U.S. coal rise.

However, ICF warns that Australia and Mozambique also are working to increase their coal export capacity in hopes of tapping into some of those same markets.

Natural gas competes

ICF says coal will withstand the increase in gas demand due to the forthcoming onslaught of LNG exports, noting that exports could raise the price of natural gas.

“In ICF’s view, gas prices are likely to play an important role in preventing the construction of new coal power plants as well as contributing to the retirement of older smaller units,” the company writes. “Natural gas prices, however, are not likely to eliminate coal demand at existing U.S. coal power plants over the next 10 years.”

Jeff Archibald, a manager with ICF who helped write the report, said that — this winter notwithstanding — the country has had unusually mild winters in recent years that have led to lower natural gas prices. But he says that pattern won’t hold, and more typical winter weather in the longer-term will increase natural gas prices, reducing its price advantage over coal.

He said that coal demand will increase slightly in the short-term and then remain flat for the next decade, but in the early 2020s, it will start to decline again, especially as coal plants start to retire.

The study echoes the comments made by experts at the IHS CERAWeek conference in Houston earlier this month, who said that while the world will increasingly rely on natural gas for power generation, “coal will remain king” for the foreseeable future.

Source: fuelfix