New coal power plants outside the US, along with infrastructure constraints and domestic sales quotas in some countries, are helping to keep the worldwide supply and demand balance tight, coal market participants said yesterday at the Coal Market Strategies Conference in Santa Ana Pueblo, New Mexico.
That tightness is helping to support European-delivered pricing farther out on the forward curve. For US exporters, that “allows you to start to think about putting a little bit more term on some of the deals,” US producer Consol Energy’s director of market strategy and business development Dan Connell said.
As international benchmarks hold at levels high enough to make exports out of most basins competitive, Doyle Trading Consultants (DTC), an energy research firm that specializes in the coal industry, is forecasting that 16pc of the US’ total production for the year will be shipped to customers abroad, the highest level in years, according to head of market analytics Andy Blumenfeld.
DTC puts US coal exports for the year at 119 short tons (108mn metric tonnes), above the 102.5mn st the US Energy Information Administration predicted in its latest Short Term Energy Outlook yesterday.
And that figure could be even higher were it not for “kinks in the logistics chain” that have held up some shipments, Blumenfeld said.
In addition to strong international markets, the US coal industry is well-placed to benefit from a number of other factors. The US is seen as a stable government and a reliable supplier with “proven built infrastructure,” Blumenfeld said. That has helped coal producers to secure a “loyal” seaborne market in the European Union.
Asian coal buyers, for their part, are concerned about growing political tensions near transportation routes in the South China Sea and want to buy US coal for energy security reasons, Lighthouse Resources chief executive Everett King said. Lighthouse owns two mines in the Powder River basin.
In addition, other suppliers to that market are unattractive for a number of reasons — quality concerns in Indonesia, fierce competition for Chinese supplies, and geopolitical concerns in Russia, King said.
Consol sees India as its next big growth market. The company said in a recent earnings call that it sent 69pc of its exports to India in the quarter, and demand is expected to continue to grow. Connell cited BP forecasts that the country’s overall energy demand will increase by 4pc/yr. To meet that demand, 50GW of coal generating assets are under construction in India.
The company also sees eastern Europe as a growth area for Northern Appalachian coal exports.
But there are some threats to the outlook for US exports.
The current strength of the US dollar is making it harder for US producers to compete abroad, especially with the Indian rupee near “all-time lows,” Blumenfeld said.
In the future, liquefied natural gas (LNG) terminals coming on line in the US and Australia mean gas “could end up at some point displacing coal” in China and Japan, according to Blumenfeld. That could complicate US export conditions even as it gives domestic coal a boost by pushing natural gas prices up.
If Asian suppliers solve their infrastructure and quality issues, or if China increasingly relies on its own domestic production, that would also bode poorly for US miners.
If export demand does stays strong, market participants predict the next challenge for the industry will be a logistical one.
Connell said that “on paper” the US has the export capacity to meet demand. “But obviously achieving this requires a lot of coordinated effort from the mine through the logistics system to the terminal,” he said.
That has been underscored by logistical issues in the US that delayed some export shipments last quarter, to the chagrin of US producers.
As the US export boom “appears more and more sustainable, that is going to be a key balancing act,” Connell said.
View article here.
- On August 8, 2018