'Here to stay': Old-school coal is making a comeback

McClatchy Washington BureauApril 17, 2014 

— Coal, the former king of American energy, is making a comeback after being left for dead in favor of cleaner-burning natural gas.

For years coal has been losing market share as the American fracking boom created a flood of cheap and abundant natural gas. But natural gas prices have edged upward, and the frigid winter created unprecedented energy demands. Power plants have increasingly been turning to coal as the solution.

There's serious doubt whether the resurgence in coal can last in America with stricter environmental rules coming. But the global outlook for coal is bright, and U.S. coal producers hope to take advantage by increasing exports to other countries hungry for cheap energy. The International Energy Agency believes coal will be the No. 1 fuel for meeting the worldwide increase in energy demand.

"Like it or not, coal is here to stay for a long time to come," IEA Executive Director Maria van der Hoeven said in the agency's most recent coal market report. "Coal is abundant and geopolitically secure, and coal-fired plants are easily integrated into existing power systems."

Van der Hoeven added, though, that she wanted to emphasize that coal burning in its current form is "simply unsustainable" for the world's climate.

Research by the Illinois Department of Commerce and Economic Opportunity shows coal production in Illinois is on the rise. The state exported a record 13 million tons of coal in 2012 after having exported 2.5 million tons in 2010.

According to Arlington, Va.-based energy industry consultant Energy Ventures Analysis Inc., the recent surge in Illinois production is from low production costs, the market's increased appetite for coal and access to major transportation, which includes American Milling Co.'s new $13.6 million coal terminal near the Port of Cahokia. The metro-east port can transfer up to 10 million tons of coal from rail to barges, down the Mississippi River, to the Port of New Orleans in the Gulf of Mexico.

St. Louis-based Peabody Energy owns a 5 percent stake in the Prairie State Energy Campus that since 2011 has been operating in Washington County. The power plant includes an on-site coal mine that powers the 1,800-megawatt power plant.

In Randolph County, Houston-based Dynegy Inc. invested about $1 billion during the past decade to add cleaner coal-burning technology to its Baldwin Energy Complex. The company has installed dry scrubbers, baghouses and mercury controlling technology at the Baldwin plant and the company's three other Illinois power plants in Wood River, Havana and Hennepin. These upgrades meet the requirements under amendments to the federal Clean Air Act. The U.S. Environmental Protection Agency is requiring compliance of all energy producers by 2015.

In a blow to President Barack Obama's pledge to be a leader in the fight against global warming, American carbon dioxide emissions rose an estimated 2 percent last year after falling by 12 percent over the previous seven years. The federal Energy Information Administration attributes the rise in U.S. carbon dioxide emissions largely to the country using more coal than it used to.

Coal burning increased in the United States nearly 4 percent last year, and this year should see an even bigger spike, according to the Energy Information Administration.

"There is a resurgence, and it is quite a strong one," said James Stevenson, the director of North American coal analysis for the global energy consulting firm IHS.

Coal's renewed popularity is a result of natural gas prices more than doubling over the past two years in response to a tighter market.

Those prices allow cheap coal to compete. The use of natural gas for power generation dropped in 2013 for the first time in five years as a result.

The Arctic blasts of this year's winter also pushed power plants to turn to coal in order to meet the nation's record-setting heating requirements.

"The main benefactor of this extreme cold and extreme low in natural gas inventory is coal," said Bob Yu, an analyst for Bentek Energy.

Coal is set for more growth this year because of the price of natural gas and the ramp-up of coal generation, according to Yu and other analysts.

Coal from western Kentucky, Illinois and Indiana is on the rise, with 50 percent more production than a decade ago, according to the energy pricing and information service Platts. Coal from Montana and Wyoming is also managing to make more inroads in the market.

But the hard times continue in the economically depressed Central Appalachian coal field, which includes the century-old industry in eastern Kentucky. Mines have closed and thousands have lost their jobs. Coal from that region remains at a serious disadvantage because of its high mining costs. Platts' figures show Central Appalachian coal production dropped nearly 40 percent in the past decade.

"Much of the coal from the region is mined from increasingly smaller seams, sometimes only a few feet thick, in mostly deep underground mines," said Andrew Moore, a Platts editor who tracks the coal industry.

The rest of the U.S. coal basins could run into problems soon as well, with federal mercury and air toxics standards scheduled to begin in 2015. The Environmental Protection Agency also is working on greenhouse gas emission rules that are squarely aimed at coal.

IHS analyst Stevenson is skeptical that coal's comeback in America can last, and he expects a slow decline in U.S. consumption to take hold.

Other nations will hunger for American coal, though. Coal use has been growing in Europe, where natural gas prices are far higher than in the United States.

The United States is exporting nearly twice as much coal as it did four years ago, with big customers in the United Kingdom, the Netherlands and Germany.

Stevenson said there is also potential for a growth in U.S. coal in South Korea, with its fast-growing economy, and in Japan, which wants to move away from nuclear power in the wake of the 2011 leak of radioactive material from Fukushima. He expects coal terminals to be built in the Pacific Northwest to ship coal mined from the Powder River Basin of Montana and Wyoming to Asia.

Some information for this story was contributed by BND Business Writer Will Buss.

Email: scockerham@mcclatchydc.com; Twitter: @seancockerham.

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