The US has the largest coal reserves and is the second-largest coal producer in the world. With the estimated growth of global coal demand over the next two decades; you would think that the USA Coal companies would be ideally located for growth and profitability. However looking from afar, their location could actually prevent them from realising future success.
US coal companies have a lot of challenges at home, some are in their control, but many are not. Here are a few of the challenges coal companies are facing in the US.
Lower gas prices
The crash in global oil prices has had little impact on the US coal industry, as very little electricity is produced by oil. However with the lower oil price also comes a discounted pricing for natural gas. Gas is in very abundant supply across the US and it is taking a significant market share off coal. The amount of electricity produced by gas is forecast to equal coal in the next few months. In the longer term, this is expected to swing in the favour of coal, as coal plants complete their annual maintenance programmes. But, there are a number of coal-fired power plants that have converted to gas and gas pricing is expected to remain low. So longer term, gas may be a stronger competitor than it has been in the past.
Reduction in coal-fired power plants
Let's be blunt, the US has a president who does not like coal. Through the US Environmental Protection Agency, the "War on Coal" is in full battle mode and is about to turn to hand to hand combat. While the new orders and standards will close an estimated 90 GM of coal-fired power plants across the US, the objections and challenges will go on for some time. Either way, the impact will be negative to the US domestic coal industry. Investment will be put on hold, some coal-fired power plants will retire and it will be difficult to see new ones being built in the short to medium time frame. This with the reality of improvements to energy efficiency, the domestic coal demand may remain flat.
Very few coal ports
The global demand for coal will significantly increase, driven by the development of Asia and Africa. The quality and quantity of the US coal reserves makes it suitable for use in Asia. The demand will be there; however the US coal export infrastructure will not be. The US has very few coal ports and most of the coal is sent out through Canada. The US coal industry is trying to instigate the construction of additional coal ports that will be strategic to coal exports. Presently the main issue with this concept is finding a home for the port. Most of the proposed port locations have met strong opposition. So exports will not add growth for the US domestic coal production for at least 5 yr.
Coal companies in the US are facing a very challenging home environment in which to conduct business. Growth in domestic coal demand doesn't have a strong outlook and access to the global coal growth markets is looking weak – not to mention that there are already very strong competitors, like Australia, Indonesia and even Russia, whch already have the coal export infrastructure in place.
It would appear that to access future growth, the US coal companies may have to look at the strategy of relocating out of the US, moving offshore to gain access to more favourable markets and to position themselves with new coal reserves that can be transported to Asia and Africa. It may very well be a case of having to relocate to survive.
Written by Russell Taylor. Edited by Jonathan Rowland.About the author: Russell Taylor has over 20 yr of experience in the coal mining industry as a mining engineer, project director and mining executive. Most recently, he was Executive Vice President and Project Director at Reliance Coal Resources in India.
Read the article online at: https://www.worldcoal.com/special-reports/12062015/will-us-coal-companies-have-to-move-offshore-to-survive-coal2412/