Last month’s forum left few if any doubts that as the world crawls out of a steep recession, coal is emerging a winner. The developing world is throwing a party for coal, and U.S. exporters are invited. Speaker after speaker noted China’s enduring power to drive global coal demand. The Middle Kingdom, now the world’s second largest economy, is lighting up scores of giant new cities and builds them with steel made with Appalachian coal. Luther Lu, managing director of Coal Sentinel, expects China to demand another 1 billion tons of coal by 2015, even as it will grow production by 1.15 million tons by then. China’s annual power growth, at 13% annually, already outstrips its 9% GDP growth. If this relationship continues, said Lu, “they’re going to have problems.”
Speakers also noted something less appreciated: it isn’t just China that’s flying coal’s colors. The rest of Asia, especially India, is demanding more coal to electrify its growing urban enclaves welling up with a fast-rising middle class that is happily consuming air-conditioning, cell phones and the other trappings of Western living standards.
Some conference experts argued that even mature economies in the European Union are beginning to see coal, especially America’s, not merely as a supplement to their green energy mix, but an essential component of their energy supply—particularly after Japan’s nuclear disaster renewed fears about splitting atoms for electricity. Despite its tragic history with nuclear power, Japan will build more nuclear capacity than Germany. And thanks to the resulting recovery in the global steel industry, seaborne exports of U.S. met coal are up 20% in the past two years. Peabody’s Marketing Executive Eric Ludtke expects a record volume of 90 million tons this year.
“It’s a coal-fired future,” quipped Macquarie Bank Analyst Colin Hamilton.
At least it appears to be for global producers. But another theme running under the surface—but well known to the NMA—was the constraints U.S. coal faces, not from China’s government but from its own. Regulators backed by an administration with an anti-fossil fuel agenda may keep U.S. producers from fully participating in the global coal party.
From costly regulations for underground safety equipment and tougher water quality requirements on production to new air regulations for coal-based power plant emissions, the costs of mining and using U.S. coal are growing as fast as coal demand. “The EPA is setting a de facto energy policy” for the U.S., said CONSOL’s Chief Investor Relations Officer Brandon Elliott. “In what other country is this possible?” Answer: none with a growing economy.
Looking at a chart of modest increases in recent coal-based capacity, Nick Carter, CEO of Natural Resources Partners, said “the Sierra Club determined, with the administration’s support, to stop the coal build” here. But offshore, where neither have much influence, coal’s future is bright. By 2030, said Carter, more than 4 billion of the world’s population will rely on coal for at least 40% of their electricity needs. Global steel mills are being built at the same rate as power plants in most of the developing world. “So,” asks Carter, “why in God’s name is our government making life so difficult for coal?”
Despite opposition from our own government, several speakers hailed the U.S. coal supply chain for meeting resource and regulatory challenges. Ernie Thrasher, CEO of Xcoal Energy & Resources, was “shocked at the efficiencies we’re getting in the U.S. from existing transport infrastructure.” But how long U.S. producers and shippers can manage under trying circumstances is the question. “The regulatory impact on U.S. supply is very, very significant,” he said.
So, cheer up. The outlook for coal is sunny—just not here.
Popovich is a spokesperson for the National Mining Association, the industry’s trade group based in Washington, D.C.
