Coal Exports Booming

U.S. Exports Cheap Coal


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By Swagato Chakravorty
Monday, March 18th, 2013

The Indonesia Coal Mining Association declared last week that it expects total Indonesian coal exports to shoot up to 330 million tons over 2013, or a year-over-year rise of 6.5 percent.

Presently, that nation is already the world’s biggest exporter of thermal coal, which is bought up primarily by India and China, as the Jakarta Globe reports. The Indonesian mineral sector amounts to $93 billion and constitutes nearly 12 percent of national GDP.

From the Jakarta Globe:

“Exports remain high because domestic consumption is still small,” Bob Kamandanu said on the sidelines of a conference in Singapore, adding that demand from key consumer China, especially for low-quality coal, was quite strong.

“India always needs coal and [exports to India] will continue to increase,” he also said.

A recent lifting of Indonesia’s ban on low-grade coal exports has helped boost the nation’s coal export volumes. The ban was lifted in part due to economic pressures after the worldwide economic troubles.

Coal TerminalLow coal prices of late have also impacted the Indonesian coal sector. The Newcastle spot index, after hitting a low of around $80/ton last year, has recovered somewhat, as the Jakarta Globe reports. Total production in Indonesia is projected at around 400 million tons over the year, which is a higher estimate than the 370-375 million tons previously stated.

Meanwhile, the U.S. continues to find a welcoming market in Asia for its coal exports. Over 2012, the U.S. exported more than 120 million tons of coal, more than doubling figures from 2009, the Wall Street Journal reports.

Surprisingly, a lot of this coal ended up going to the U.K., the Netherlands, and Italy, in addition to the emerging Asian markets. Britain, for example, recently saw coal consumption levels of almost 50 percent for its electricity in Q3, 2012. For these nations, coal is cheaper than natural gas.

From the Wall Street Journal:

"The gas plant has simply been pushed off the grid by coal plant [in Europe], and that's most marked in the U.K.," said Nigel Yaxley, the managing director of the Association of U.K. Coal Importers, a trade group.

That the U.S. finds itself able to export coal is a side-effect of the ongoing North American shale boom. Shale drilling has caused massive increases in the amount of available natural gas, which has pushed prices down drastically. That, in turn, has knocked coal off the top spot in terms of economical fuel options.

Besides, natural gas is much cleaner, and thus more environmentally attractive. All that means coal is now lying around and thus available for export. And that means companies like Dominion Terminal Associates, a coal-terminal operator, stand to benefit enormously.

Not everyone is enamored with the prospect of increased American coal exports, however. Environmental activists and entities protest that exporting steam coal (the kind used in power plants) essentially means we’re exporting harmful greenhouse gas emissions abroad. We’re passing the buck for fossil fuels emissions, in other words.

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That’s a valid point, but when companies like Peabody Energy Inc. (NYSE: BTU), Arch Coal Inc. (NYSE: ACI), and Alpha Natural Resources Inc. (NYSE: ANR) are setting records for coal tonnage exports, and new export terminals are popping up all over, it’s hard to argue with the incoming profits.

Over the first 11 months of 2012, the U.S. exported $13.8 billion in coal. $3.8 billion of that was steam coal. But lower average prices per ton meant the total revenue was slightly lower than 2011’s revenue.

It’s a bit uncertain just how long the U.S. can push this luck, though. President Obama made clear mention of renewed attention to clean emissions during his second term, and the EPA continues to tighten rules regarding emissions.

Such initiatives are underway in the U.K. too, where coal plants are being phased out. And Europe continues to labor on under an anemic economy. Taken together, it paints a less-than-ideal picture for the future of lucrative coal exports.

That’s where Asian markets come into the picture. Just last year, Booth Energy Group and River Trading Co. achieved a deal with India’s Abhijeet Group. The deal, worth $7 billion, would supply that company with 9 million tons of coal mined in Kentucky and W. Virginia. It was among the first of several billion-dollar deals spread across Asian markets for coal.

The demand for energy in India and China remains extremely strong, and what they need is cheap energy so that it can supply power to as much of the country as possible. So even as the shale boom and tighter environmental regulations mean a down market for coal in the Western world, there is a hunger growing in the East. And that’s where coal is headed.

 

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