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Coal: Inconvenient Truths

The current coal bust might lead to a future boom.

Fortnightly Magazine - February 2008

control equipment installations.

Boom and Bust

Coal markets are subject to boom-and-bust cycles with supply and demand constantly in flux and production, contracts, transportation, and stockpiles all contributing to the complex interrelationships of the markets. To address this uncertainty, Ventyx Energy Group uses the Coal Quality Market Model (CQMM) to forecast future U.S. consumption, allocation, and price of coal from every mine to every boiler over the 25-year study period. The CQMM relies on input data from the Velocity Suite, the industry’s leading coal and energy market database, along with the help of numerous government, public, and private data sources.

Coal will remain the single largest contributor to overall U.S. electricity supply over the course of this forecast. Coal generation will increase almost 28 percent through 2031, although coal’s relative share of the market will decline by four percentage points. Gas-fired capacity will increase its market share of generation by 10 percentage points while posting a 227-percent increase in actual electricity production; this is the second largest growth in generation in this forecast. The largest relative growth in generation comes from non-hydro renewables, which will experience a 341 percent increase, but still remain only 5 percent of the total U.S. generation.

U.S. coal demand differs among the different regions of the country due to several key factors. These include growth in overall electricity demand; status of the existing coal fleet, including the age of the units and their utilization rate; difficulty in permitting new plants; and, delivered cost of coal and competing fuels.

The Northeast region has the lowest current coal demand and the slightest increase in coal demand of all the regions over the forecast period. With an average growth of 0.5 percent a year, its total demand will increase 13 percent over the 25-year time span. The West region will remain also relatively flat, increasing 16 percent over 25 years. The Southeast region is expected to increase 24 percent, which equates to over 160,000 GWh of coal generation. The Midwest shows growth every year resulting in the highest absolute increase (248,300 GWh or 34 percent since 2007) in coal power demand by 2031. The South Central region, while small, shows the greatest average yearly increase (1.5 percent) and overall increase (44 percent) in coal-fired electricity generation.

Total deliveries of coal within the United States are expected to increase from 1.05 billion tons in 2007 to 1.3 billion tons in 2031, an annual average increase of 1.98 percent. Production of coal is expected to increase for all basins except for Central and Southern Appalachia, which should see production decrease by 45 percent and 28 percent, respectively. The largest percentage increase in demand is expected to come from Colombian coal at 178 percent—a 36 million ton increase over the 25-year study period. Demand for PRB coal is forecasted to rise by 50 percent (average annual growth of 9.4 million tons a year) and the Illinois Basin should see a 37 percent growth in demand (average annual growth of 1.28 million tons/year). Rocky Mountain coal is expected to command a 27 percent increase