Monday, June 15, 2009

A Bleak Outlook for Coal

A piece in the Wall Street Journal looks at the effect of plunging natural gas prices on the already cloudy future for coal.

With the price of natural gas less than half of what it was a year ago ($4 per million BTUS, compared to $13 per million BTUS last July) coal's share of the domestic electricity generation market is likely to free-fall (coal accounts for roughly 50% of domestic power generation; natural gas 21%).

According to the Journal:

"New natural-gas discoveries, however, in Texas, Louisiana, Pennsylvania and elsewhere, have created a gas glut that analysts expect to linger. Energy consulting firm Wood Mackenzie predicts gas prices won't recover until 2015.

Power companies are beginning to ratchet back investments in coal-generated plants to take advantage of low gas prices and hedge against costly climate-change legislation."

The write-up includes this rather dim forecast from the coal industry:

""There basically is no spot market for coal right now," adds Jim Thompson, managing editor of the Coal and Energy Price Report in Knoxville, Tenn., a coal-industry newsletter. "Coal companies are living off their utility contracts."

Utilities mostly obtain coal through multiyear contracts. As a result, even though spot coal prices have fallen, prices paid by utilities are expected to rise 2% this year to an average of $2.11 per million BTUs. Next year, the EIA expects coal prices to dip slightly to an average of $1.91 per million BTUs."

Lower Natural-Gas Price Leaves Coal Out in Cold [Wall Street Journal]