Coal: An Export in Solid Supply

These days, people really are taking coals to Newcastle.

That flow is part of a vast reorganization of the global coal trade that is making the United States a major exporter for the first time in years — and helping to drive up domestic prices of the one fossil fuel the nation has in abundance.

Coal has long been a cheap and plentiful fuel source for utilities and their customers, helping to keep American electric bills relatively low.

But rising worldwide demand is turning American coal into another hot global commodity, with domestic buyers having to compete with buyers from countries like Germany and Japan.

Environmental concerns have forced some American utilities to cut back on plans for coal-burning power plants.

Nonetheless, spot prices for two benchmark American grades of coal, from central Appalachia and the Powder River Basin of Wyoming, have been rising, with occasional dips, since last spring.

They eased in recent days but are still up by 93 percent and 64 percent, respectively, in the last year, according to figures from Doyle Trading Consultants and Evolution Markets.

How high prices will go, and how quickly the increases will be passed along to electricity customers, remains to be seen.

American utility companies buy almost all their coal on long-term contracts, locking in prices for several years.

But as those contracts come up for renewal, price increases are likely, analysts said.

“Watch out, consumer,” said David M. Khani, a coal analyst at Friedman, Billings, Ramsey Group. “You’re probably going to see accelerating electricity prices in 2009, 2010 and 2011.”

Coal and utility executives predict that coal will remain the most economical fuel in years to come. But they concede that any significant rise could have an important inflationary impact since coal is used to produce about half the nation’s electric power, and coal is also vital in steel production.

For coal producers, the new demand abroad is good news at a time when coal is under political attack at home. More than 50 proposed coal-fired power plants were delayed or canceled over the last year because of concerns over greenhouse gas emissions.

“This export boom right now is the difference between slow growth in our markets and hyper-expansion in our markets,” said Gregory H. Boyce, chairman and chief executive of Peabody Energy , the world’s largest private coal company. “You have two billion-plus people looking for a better standard of living. The world is energy-short and the U.S. coal sector is beginning to fill that gap.”

Many environmental groups see the rising global trade as an ominous development, however, since it promises to confound efforts to limit global emissions. World consumption of coal has increased in recent years by more than 4 percent annually, a major reason that emissions of carbon dioxide are going up, not down. Carbon dioxide is the principal gas implicated in global warming.

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“Any rise in coal use around the world is bad news for the environment,” said Alice McKeown, who works on coal issues for the Sierra Club. “The U.S. needs to be a leader on global warming, and increasing our coal exports is moving in the wrong direction.”

The United States will export 7 or 8 percent of its coal production this year, up from about 5 percent last year, industry leaders predicted in interviews. Because of higher prices, the value of coal exports should double, to $3.75 billion.

United States exports of coal grew from 49 million tons in 2006 to about nearly 59 million tons in 2007, according to coal industry statistics, while domestic production increased by 1 percent. Coal executives say they expect exports to reach 80 million tons this year, and with railroad and port improvements, to rise to as much as 120 million tons in the next few years.

“There’s no question that the incremental rise in exports this year has driven the prices up,” said Charles E. Zebula, senior vice president for fuel supply at American Electric Power , one of the country’s largest utilities.

Dollar Drop Spurs Coal Exports

Simultaneously, imports of coal are decreasing gradually as producers in Colombia and Venezuela turn to markets other than the United States for higher prices. The shifts are further tightening supplies of coal in the eastern United States, where stiffening regulations and various mine closings have limited output in recent years.

“U.S. coal producers are trying as much as possible to ship coal to the highest bidder, and in many cases that means Europe,” said Gordon Howald, a coal analyst at Calyon Securities. “The once-stodgy coal industry has become an exciting global commodity.”

CONTINUED : Former Exporters Now Import

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