Coal Supply and Demand Fundamentals - CMU · 11/25/2002 · • Supply – Supply Regions –...
Transcript of Coal Supply and Demand Fundamentals - CMU · 11/25/2002 · • Supply – Supply Regions –...
Coal Supply and Demand Fundamentals
Carnegie Mellon University, Electricity Industry Center
November 25, 2002
Ellen Ewart, Senior Consultant
Platts Research & Consulting/RDI
2
Presentation Outline
• Background: Coal 101• Current state of the industry• Major market drivers for coal
3
Basic Coal Information
• Supply– Supply Regions– Companies– Mines and Mining Methods– Production– Productivity and Employment– Costs– Supply-Side Regulatory Issues
• Demand– Demand and Consumption by
Market Sector– As-Received Quality– Consuming Companies and
Facilities – Current and Future Technologies for
Coal Utilization– Demand-Side Regulatory Issues
• Prices
• Transportation– Type
• Rail• Barge• Truck• Belt/other
– Distance– Cost
• Environmental– Emissions– Allowances– Emission Control Technology
• Forecasts
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U.S. Coal Supply Regions
SouthernPRB
Raton/Canon City
NorthernPRB
FourCorners
S. Wyoming
CentralRockies
NorthernLignite
GulfLignite
IllinoisBasin
SouthernAppalachia
CentralAppalachia
NorthernAppalachia
Washington
Source: PowerMAP
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Coal Quality is Highly Variable
Average Coal Quality (As-Received), 2000-02
Source: COALdat
Coal Supply Region Btu/lb. Lb. SO2/MMBtu % AshEastNorthern Appalachia 12,423 3.84 10.88Central Appalachia 12,405 1.48 10.77Southern Appalachia 12,104 1.89 12.86Illinois Basin 11,316 4.37 10.08WestNorthern Powder River Basin 9,068 1.13 6.56Southern Powder River Basin 8,655 0.70 5.09Central Rockies 11,426 0.84 8.73Four Corners 9,971 1.29 15.92Gulf Lignite 6,438 3.35 16.58Northern Lignite 6,532 2.25 9.52
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U.S. Coal Industry Expansion
Source: U.S. Energy Information Administration
U.S. Coal Production and Generating Capacity Additions, 1954 - 2000
0
2 0 0
4 0 0
6 0 0
8 0 0
1 ,0 0 0
1 ,2 0 0
1954
1957
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
Coa
l Pro
duct
ion
(MM
Ton
s)
-
5 ,0 0 0
1 0 ,0 0 0
1 5 ,0 0 0
2 0 ,0 0 0
2 5 ,0 0 0
3 0 ,0 0 0
Cap
acit
y (M
W)
Ea s te rn To n s W e s te rn To n s N e w C o a l- Fire d C a p a city Ad d e d
7
Rapid Productivity Growth
0
5
10
15
20
25
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Ton
s/E
mpl
oyee
-Hou
r
Eastern U/G Eastern Surface Western U/G Western Surface
Source: U.S. Energy Information Administration
U.S. Coal Mine Productivity, 1984 - 2000
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Factors Influencing Productivity
• Technological– Underground
• Longwalls• Advancements in continuous miners• Computerization and automation
– Surface• Larger haul trucks• Draglines• Mountaintop mining• Computerization and automation
– Other• On-line analyzers• Improvements in coal handling systems
• Labor– Training– Declining influence of the union
• Regulation
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CAPP Surface MinesCAPP Surface Mine Production and Productivity, 1995 – 2002 (Est.)
Source: COALdat
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
1995 1996 1997 1998 1999 2000 2001 2002
Ton
s (0
00)
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
Ton
s/E
mpl
oyee
-Hou
r
Tons (000s) Avg Tons/Emp/Hr
10
CAPP Underground MinesCAPP Underground Mine Production and Productivity, 1995 – 2002 (Est.)
Source: COALdat
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
1995 1996 1997 1998 1999 2000 2001 2002
Ton
s (0
00)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Ton
s/E
mpl
oyee
-Hou
r
Tons (000s) Avg Tons/Emp/Hr
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NAPP Surface MinesNAPP Surface Mine Production and Productivity, 1995 – 2002 (Est.)
Source: COALdat
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
1995 1996 1997 1998 1999 2000 2001 2002
Ton
s (0
00)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Ton
s/E
mpl
oyee
-Hou
r
Tons (000s) Avg Tons/Emp/Hr
12
NAPP Underground MinesNAPP Underground Mine Production and Productivity, 1995 – 2002 (Est.)
Source: COALdat
0
20,000
40,000
60,000
80,000
100,000
120,000
1995 1996 1997 1998 1999 2000 2001 2002
Ton
s (0
00)
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Ton
s/E
mpl
oyee
-Hou
r
Tons (000s) Avg Tons/Emp/Hr
13
SPRB Surface MinesSPRB Surface Mine Production and Productivity, 1995 – 2002 (Est.)
Source: COALdat
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
1995 1996 1997 1998 1999 2000 2001 2002
Ton
s (0
00)
0
5
10
15
20
25
30
35
40
45
50
Ton
s/E
mpl
oyee
-Hou
r
Tons (000s) Avg Tons/Emp/Hr
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Trend Toward Fewer, Larger Mines
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
1976 1986 1996 2001
Num
ber
of M
ines
0
100
200
300
400
500
600
700
800
Ave
rage
Min
e S
ize
(000
Ton
s)
# Mines Average Mine Size (000 Tons)
Number and Size of U.S. Coal Mines
Source: COALdat
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Industry Concentration and Consolidation
O THER6 2 %
W ES TERN
EN ERG Y3 %N ERCO
3 %S U N CO AL
2 %
S HELL MIN IN G
CO .
3 %
ARCO CO AL
3 %
EXXO N
3 %
TEXAS U TILITIES
3 %
AMAX
4 %
CO N S O L6 %PEABO D Y
8 %
PEABODY13%
ARCH10%
KENNECOTT10%
CONSOL6%
OTHER39%
VULCAN4%
NACCO2%
MASSEY4%
HORIZON4%
RAG6%
TXU2%
Sources: Keystone Coal Industry Manual, COALdat
Ownership Share of Production, 1988 vs. 2001
1988 (963 Million Tons) 2001 (1,128 Million Tons)
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Price HistoryProductivity gains have been critical to profitability of coal industry in the face of declining prices.
0
5
10
15
20
25
30
35
40
45
50
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
P
FO
B M
ine
$/T
on
Bituminous Nominal $ Bituminous Real 1996 $
Subbituminous Nominal $ Subbituminous Real 1996 $
Source: U.S. Energy Information Administration
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Financial State of the Industry
• Declining prices, decreasing margins are taking their toll on the coal industry.
• At least three major producing companies (including one in the top ten), accounting for nearly 60 million annual tons, are currently under Chapter 11 bankruptcy protection.
• Many more are on the brink, and a number of others have already disappeared.
• Poor finances, coupled with increasing regulatory uncertainty, have strangled capital investment in new mines and supporting infrastructure.
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The Generation Sector is the Largest Coal Consumer…
Distribution of U.S. Coal by Sector, 2001
Source: RDI Coal Market Research Service
Generation85.8%
R&C0.4%
Metallurgical2.4%Export
5.7%Industrial
5.8%
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…and Coal is the Dominant Fuel for Electric Generation
U.S. Electric Generation by Fuel Type, 2001
Source: COALdat
COAL53%
URAN21%
GAS16%
WATER5%
OIL3%
OTHER2%
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Coal Distribution to the Generating Sector by Supply Region
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Transportation of Coal to the Generation Sector
Railroad70%
Truck16%
Belt8%
Barge5%
Other/Unknown1%
Origin Type, 2001
Raiload62%
Barge18%
Truck11%
Belt8%
Other/Unknown1%
Destination Type, 2001
Source: COALdat
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Average Capacity Utilization at Coal-Fired Power Plants, 1997 - 2000
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Average Age of Coal-Fired Power Plants
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Will New Coal-Fired Generation Play a Role?
• Current economics and regulatory framework have not favored coal for new generation in most regions.
• Projects that go forward generally will have the advantages of:– Extremely low-cost fuel (mine-mouth, waste coal, pet coke)– Favorable political climate (including state-level tax incentives,
financial assistance, “fast-track” permitting, etc.)– No transmission constraints– Environmental compatibility (PSD, Class I areas)
• All new plants will be equipped with state-of-the art pollution control technology.
• Over longer term, new clean coal technologies will be emphasized.
• Projects must “time the market” correctly.
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The Economics of Coal vs. Gas for New Generation
$0.50 $0.75 $1.00 $1.25 $1.50 $1.75 $2.00 $2.25
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
NOTE: DIFFERENTIAL BASED ON FULLY LOADED COSTS OF A NEW UNIT
COAL PRICE
GAS PRICE
GAS MORE ECONOMIC
COAL MORE ECONOMIC
RDI’S GAS PRICE FORECAST
$0.50 $0.75 $1.00 $1.25 $1.50 $1.75 $2.00 $2.25
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
NOTE: DIFFERENTIAL BASED ON FULLY LOADED COSTS OF A NEW UNIT
COAL PRICE
GAS PRICE
GAS MORE ECONOMIC
COAL MORE ECONOMIC
RDI’S GAS PRICE FORECAST
Fuel Prices in $/mmBtu
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RDI’s Gas Price Forecast
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
01 Q
1
01 Q
2
01 Q
3
01 Q
4
02 Q
1
02 Q
2
02 Q
3
02 Q
4
03 Q
1
03 Q
2
03 Q
3
03 Q
4
2003
2004
2005
2006
2007
2008
2009
Rea
l 200
2$/m
mB
tu
Henry Hub NYC Hub
Natural Gas Price Forecast (Real 2002$)
Source: RDI Power Outlook, Q3 2002
Delivered prices into the northeast are slightly higher than Henry Hub but reflect generally the same longer term trend
• In the near-term, high levels of storage will put downward pressure on gas prices through Q302.
• Longer term, supplies should tighten.
• Key assumption is that greenfield LNG development will provide incremental supply.
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Proposed New Coal-Fired Plants
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Major Market Drivers
• Supply– Reserve depletion– Regulation
• Hayden ruling• Subsidence issues• Trucking restrictions
– Availability of skilled labor
– Financial condition of coal producers
• Demand– Pace of economic
recovery– Inter-fuel competition
• Gas prices• Capacity glut
– Regulation• Environmental• Electric industry
restructuring