April 17, 2012 at 09:29 AM EDT
U.S. Coal Exports Soar During Flailing Domestic Demand
While the international market for American coal is soaring, domestic demand has been on a steady decline due to steep competition from cheap natural gas and costly new rules for power plants.

Exports of U.S. coal reached the highest level in two decades last year thanks to high demand from Asia and Europe. The two continents offered a much needed outlet for coal suppliers in a time of very low domestic demand.

Data analyzed by the U.S. Department of Energy showed that coal exports peaked at 107 million tons worth $16 billion in 2011, levels unseen scene since 1991, and more than double the export volume from 2006.

Much of the increase in demand has been in response to the insatiable need for energy in Asia’s many power hungry markets, where rapid development has sparked renewed interest in American coal.

Last year coal imports were up 81 percent in South Korea to 10 million tons, up 65 percent in India to 4.5 million tons, and 119 percent in Japan to 7 million tons, as the country still reels in the wake of the Fukushima nuclear complex meltdown.

While the international market for American coal is soaring, domestic demand has been on a steady decline due to steep competition from cheap natural gas and costly new rules for power plants.

Over the past several years coal’s domestic share of the power supply has fallen by more than 20 percent, forcing companies to seek out new customers or cut production from U.S. mines.

Government projections released last Thursday said demand for coal in the domestic power sector could decline another 10 percent in 2012, driving total U.S. coal use below a billion tons annually for the second time since 1995.

The Energy Department’s forecasts were no less pessimistic expecting exports to drop over the next two years, then make a slow and steady climb to about 130 tons by 2030.

Projections within the industry are more optimistic.

Arch Coal (NYSE: ACI) expects the exponential increase in coal exports to continue. The St. Louis based company predicts export capacity could reach as high as 245 million tons by 2015.

But in order to reach this lofty goal shipping capacity must be improved and companies are demanding the construction or expansion of coal ports along on the West and Gulf coasts.

Jim Orchard, vice president of Wyoming-based Cloud Peak Energy, touched on the issue saying:

The U.S. has lots of coal. It has a wonderful rail infrastructure. But the piece of the logistical puzzle that is weakest is the terminals. To get to the next level of growth, the new terminals need to be built.  

Pending proposals in Washington state would add millions to overall port capacity for coal mined from the Powder River Basin of Montana and Wyoming.

Until next time,

Nate



U.S. Coal Exports Soar During Flailing Domestic Demand originally appeared in Energy and Capital. Energy and Capital, a free 3x-per-week newsletter, offers practical investment analysis in the new energy economy.
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