As Luke Popovich points out in the Dateline Washington column this month (See p. 14), the coal business does not have a friend in the White House. Even if it did, would coal be able to compete with weak levels of electrical demand and all of the cheap natural gas coming into the marketplace?

Already steam coal producers are idling capacities in the East. CONSOL Energy announced it is idling some longwall capacity (See Breaking News, p.4), although not all of it is geared toward the steam market. The same holds true for Alpha Natural Resources (See News, p. 6) and Patriot Coal. Rhino Resource Partners and Oxford, mid-tier U.S. coal producers, are also expressing frustration. And so are utility coal buyers.

As far as coal markets are concerned, the export market is one of the few positives the coal industry has to hang its hat on these days. Lee Buchsbaum recently visited the terminals in Vancouver and interviewed some of the executives. In his article this month (See Terminals, p. 38), one of the port managers talks about the difficulty he has turning business away. He is operating at capacity, that capacity is spoken for, and, every time he adds more capacity, they realize it’s not enough before they have even had a chance to bring the system online. A lot of U.S. coal companies are looking for the Northwest Passage—an efficient way of getting U.S. coal to Asian markets—and hoping to emulate the success Cloud Peak Energy has had (See News, p. 6). There are some great plans being discussed for the northwestern U.S., but for now the only excess capacity in the region is in Prince Rupert, B.C., at Ridley Island. That is using the term “in the region” loosely.

Last year was a banner year for exports, topping 100 million tons. The reality, however, is that only represents 10% or less of 1 billion ton plus industry. If coal continues to lose market share to gas, while the size of the energy pie stays the same or shrinks, the market would obviously soften further. Couple these supply demand fundamentals with the uphill battle that energy companies have to fight to preserve their base load coal generation, and the situation could become grim.

Because of an excessive build out in gas-fired power plants between 1998-2005, there is now a surplus in gas-fired generating capacity in addition to an abundance of cheap natural gas. Power companies are capitalizing on the investments they made 10 years ago or more. Some are saying that the share of market for natural gas could climb from 25% to 30%. That move could displace more expensive fuel sources, such as nuclear and coal. Fortunately, many of the utility fuel buyers have seen these market swings before and they are reluctant to place all of their eggs in one basket. They now have to weigh the importance of keeping a balanced portfolio of fuels against the profitability of natural-gas fired electricity.

Is it the end of the world? Not hardly, but it is the end of the world as we knew it. The difference between this period and previous periods of weakness is that the amount of gas entering the market is staggering. Prices of coal for prompt delivery are at a respectable level, but operating costs are squeezing profit margins. Coal as a fuel source has to be able to compete economically. Hopefully, the U.S. will soon see its economy rebound and the overall demand for power grow.