[Greenbuilding] Gas prices pressuring coal

Tue Mar 13 13:59:04 CDT 2012

Article in the Financial Times (below) describes how crashing nat gas prices
in the US have pushed coal to its lowest share of US electricity load since
the 70s, even though coal prices are also down. So now more US coal is being
exported—primarily to China so they can make stuff for us. I think this is a
classic paradox where the market is making improvements and it could create
an opening for further “greening” without people realizing it. Of course,
the paradox is that (a) the gas revolution is better in terms of GHG but is
from fracking, with other environmental costs/tragedies; (b) that coal is
still being burned elsewhere.

The opportunity, as I see it, is to leverage the concerns on nat gas and
that demand controls (efficiency) balanced with renewables makes for a
better future overall...and continuing to pressure oversees manufacturing to
clean up their acts (ie. pushing Apple to clean up Foxconn).  If coal prices
continue to stay low, miners, processors, and traders could even reduce
their operations or get out of coal. That will increase demand (and prices)
for nat gas and potentially renewables...prioritizing demand-side actions.

But the market will potentially lower GHG intensity....there is hope yet.

US rush to gas depresses coal prices
By Javier Blas in London

The share of electricity generated by burning coal in the US has fallen to
near a 35-year low as utilities shift to cheaper gas
<http://www.ft.com/cms/s/0/967beb32-6834-11e1-a6cc-00144feabdc0.html>  on
the back of the shale revolution.

The shift is reverberating beyond the US as domestic coal miners are forced
to export a growing share of their production. It is creating a global glut
that is depressing prices in the almost $100bn-a-year thermal coal seaborne
market.

The drop in coal use is particularly important because the US is the world’s
largest electricity market, closely followed by China, and coal-fired power
plants are one of the biggest sources of carbon dioxide
<http://www.ft.com/cms/s/0/1f3a6cf2-dab2-11e0-a58b-00144feabdc0.html> , a
gas that contributes to global warming.

Although coal remains the largest source of electricity production in the
US, its share fell in December below the 40 per cent mark for the first time
since March 1978, according to fresh estimates by the US Department of
Energy. 

The use of coal in US electricity generation peaked in 1985 at almost 60 per
cent. 

“Natural gas prices have dropped significantly this winter, leading the
generators in some states, such as Ohio and Pennsylvania, to increase
significantly the share of natural gas-fired generation,” the US government
said. 

“Natural gas combined-cycle units operate at higher efficiency than do
older, coal-fired units,” it added.

US benchmark central Appalachian thermal coal prices fell last week to $58 a
tonne, the lowest level in nearly two years.

US natural gas prices fell on Monday dropped to $2.3 per million British
thermal units, down 85 per cent from an all-time high set in 2005.

US natural gas prices have collapsed after companies achieved a large
increase in production by tapping so-called shale reservoirs, using a
technique called hydraulic fracturing – known as “fracking”.

The surge in US coal exports has created a glut that has pushed the cost of
the commodity in Rotterdam, the European benchmark, and the Australian port
of Newcastle, the Asian benchmark, to the lowest level in 15 months.

Low freight rates are helping US thermal coal producers ship their commodity
into the European and Asian market, depressing the global seaborne coal
market.

“Thermal coal is under stress,” said a senior coal trader. “The problem is
that the US miners have entered the export market. It is putting a lot of
pressure on the price.”

Industry executives believe the benchmark annual contracts between coal
miners and Japanese utilities
<http://www.ft.com/cms/s/0/967beb32-6834-11e1-a6cc-00144feabdc0.html>  would
be settled this month at $115-$120 a tonne, down 7.5-11.5 per cent from the
record high
of $130 a tonne of last year.

The shift in US electricity and the expectation of lower global prices is a
setback for the world’s big producers, including Indonesia’s Bumi
<http://markets.ft.com/tearsheets/performance.asp?s=uk:BUMI> , Xstrata
<http://markets.ft.com/tearsheets/performance.asp?s=uk:XTA> , Anglo American
<http://markets.ft.com/tearsheets/performance.asp?s=uk:AAL> , Rio Tinto
<http://markets.ft.com/tearsheets/performance.asp?s=uk:RIO>  and
Jakarta-listed Adaro
<http://markets.ft.com/tearsheets/performance.asp?s=id:ADRO> .

It is negative, too, for commodities trading houses including Glencore and
Noble Group of Hong Kong.

Share prices of leading US thermal coal miners, including Consol Energy
<http://markets.ft.com/tearsheets/performance.asp?s=us:CNX> , Alpha Natural
Resources <http://markets.ft.com/tearsheets/performance.asp?s=us:ANR>  and
Arch Coal <http://markets.ft.com/tearsheets/performance.asp?s=us:ACI> , have
already fallen significantly and some companies have announced production
cuts to mitigate the glut.

More
On this story
* Comment US natural gas will hit annual coal contracts
<http://www.ft.com/cms/s/0/967beb32-6834-11e1-a6cc-00144feabdc0.html>
*  Natural gas prices near 10-year low
<http://www.ft.com/cms/s/0/e1972114-690a-11e1-9931-00144feabdc0.html>
* North America US has its eye on oil independence
<http://www.ft.com/cms/s/0/cf1f1eca-19b8-11e1-ba5d-00144feabdc0.html>
* In depth Climate change <http://www.ft.com/indepth/climatechange>
On this topic
* Martin Wolf Prepare for a golden age of gas
<http://www.ft.com/cms/s/0/7d298f50-5c85-11e1-8f1f-00144feabdc0.html>
*  PetroChina buys Shell shale gas assets
<http://www.ft.com/cms/s/0/7ee7db16-4d86-11e1-bb6c-00144feabdc0.html>
IN Commodities
*  Man launches computer-driven commodities fund
<http://www.ft.com/cms/s/0/83655a16-6d15-11e1-ab1a-00144feab49a.html>
*  US natural gas prices fall to 10-year low
<http://www.ft.com/cms/s/0/92eac354-6cfc-11e1-a7c7-00144feab49a.html>
*  India backtracks after lifting cotton ban
<http://www.ft.com/cms/s/0/82e09b9c-6c38-11e1-8c9d-00144feab49a.html>
 India unpicks cotton shipments ban
<http://www.ft.com/cms/s/0/76954242-6b9e-11e1-ac25-00144feab49a.html> 

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