Benchmarks

Deck: 
Unless gas prices stabilize, coal prices will continue rising.
Fortnightly Magazine - May 2004
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Benchmarks

Unless gas prices stabilize, coal prices will continue rising.

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Gas prices to power plants have surged in 2003, increasing more than 50 percent over their 2002 level. In absolute terms, this gas price in-crease exceeds $2/MMBtu-almost two thirds larger than average coal prices to power plants in 2003-and has rekindled interest in new coal-fired power plants. An increasing number of new coal-fired projects have been announced in the last 12 months. Recently, however, coal prices have begun to creep up, especially in the eastern United States. NYMEX-traded Central Appalachian spot-market coal has increased from $1.40/MMBtu to over $2.10/MMBtu since August 2003. Some new, long-term coal contracts have been signed at levels more than $1/MMBtu above current prices.

Because gas prices are unlikely to decline much in the near term, there is a growing possibility that coal prices may increase substantially in the future. The critical question is the extent to which this growth might occur and its impact on electricity generation and prices.

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