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A Wakeup Call for Coal

U.S. imports make up the fastest-growing segment of the industry. Are we prepared?

Fortnightly Magazine - December 2006

Global Energy decided not to wait for such a study. We performed a basin-by-basin analysis of coal-productive capacity and also assessed the impacts and implications of coal imports to independently assess America’s coal-productive capacity. In our report, Can Coal Deliver? America’s Coal Potential and Limits , Global Energy made an in-depth and candid analysis of the key supply and production issues confronting America’s coal industry. 1 We found the following:

• U.S. coal production may have to increase by as much as 4 percent per year for the next 20 years to achieve fuel- diversity objectives and to meet expected demand from power generators.

• Total U.S. coal production capacity has been in decline since 1999. Based upon mine level reports collected by the EIA, U.S. coal production capacity was only 2 million tons per year (mtpy) higher in 2004 than in 2000.

• Global Energy estimates “ready reserve” coal capacity increased modestly in 2005 (by 2 percent), but that the increase is nearly all attributable to addition of more Western coal capacity where transportation constraints continue to exist.

• The most rapidly growing component of U.S. coal supply since 2000 is coal imports. Steam coal imports are up almost 20 percent per year while domestic coal production is up 1 percent per year.

How can that be? The diminishing productive capacity of certain coal basins, notably Central Appalachia, is leading to growing imports of coal to the “Saudi Arabia of Coal”—the United States. Substantial investment in coal infrastructure and development is needed to regain America’s full productive capacity of its coal reserves.

What about global warming? Even as the United States becomes more concerned about the implications of global warming, the rising demand for coal is adding pressure for investment in IGCC and other new technology to enable clean-coal use. This will have a dramatic effect on coal blends and deliverability.

Given lack of investment in infrastructure, lack of trained personnel, and the regional differences in gaining cost-effective access to coal, the key question is whether the coal industry can deliver. The outcry about problems with U.S. coal supply reached a loud crescendo in mid- and late-2005 as surging demand for coal, coupled with transportation outages on the Joint Line in the Powder River Basin, placed further pressure on specific links in the coal-supply chain—some of which have shown stress for several years.

The highest-profile anxiety has been in the coal-fired power generation sector, where consumers have reduced stockpiles to near zero in some regions and, in a few instances, have been forced by coal shortages to switch to gas to meet demand.

Focus on the high-profile cases has somewhat overshadowed numerous cases where lack of coal at the loadout (in Central Appalachia), lack of barges, lack of rail cars and motive power, and lack of coal at the ports of departure (in South America) have undermined the reputation of coal’s reliability as a baseload fossil fuel throughout the United States.

Somewhat muted in the noise have been observations that U.S. coal-supply capacity needs detailed examination to avoid future problems and