Wednesday, September 9, 2009

Coal Will Fight to the Death

I was perusing the Energy Information Administration web site today when I came across an image (below) from the 2008 EIA Annual Energy Report on coal that proved to me that the coal industry will do anything and everything it can not to be bested by natural gas in what will become a head-to-head confrontation in the negotiations over the energy and climate legislation being considered in Washington.  This is a life or death situation for the coal industry and coal will fight to the death.

The image in question, below, is the “Coal Flow” diagram for 2008.  It shows the sources of all coal in the U.S. and all of its uses.  For most industries, the right side would look like a plate of spaghetti of multiple end users, but for coal it looks like a fat log of one big user.

It is a little confusing at first, but on the left are the sources of coal. Of the 1.219 billion short tons (“ST”) of all coal mined, imported or derived from waste in 2008, 96% (1.172 billion ST) was mined domestically.  At the top, you see exports and rounding errors and to the very right you see consumption.  This is what really has to scare the coal industry.  Of the 1.122 billion ST of coal consumed each year, 93% (1.042 billion ST) was used in electric power generation.  Now that’s a concentrated situation with 96% of the coal produced being mined domestically and 93% of all coal consumed being used by one type of customer. 

Think about it:  if legislation passes that creates incentives for utility companies to use gas over coal, the coal consumption level will drop immediately, and no other consuming industry will be there to pick up the slack.  If production doesn’t drop accordingly, suddenly you’ve got a colossal supply problem and you know what happens then.  Sound familiar natgas fans? 

The coal industry now has a supply issue of its own as the chart below points out. The chart shows the electric power sector’s coal stocks for the past five years (in thousands of short tons) through May 2009.  As the chart shows, the May 2009 figure of 198 million ST is 39.3% higher than the average storage number for the same month of the previous four years.  Comparatively, natural gas storage is about 18% higher than the five year historical average.  But while gas is easier to transport than coal, coal is easier to store than gas (just make the black mountain higher and wider), so you don’t hear as much about the coal stockpiles.

It wasn’t always this way.  As the charts below show, sixty years ago, coal consumption was relatively balanced between industrial users, electric generation and residential/ commercial/ transportation uses.  Over the past sixty years, residential/ commercial/ transportation uses have gone to near zero and many industrial users have switched to natural gas.  The electrical power industry more than picked up the slack, as its use of coal grew substantially since the mid-1960’s. 

If it weren’t for cheap coal to power electrical plants, I’m guessing many coal mines would have been shuttered a generation ago.  Now, the coal industry is entirely dependent on the electric utilities and probably does everything but shine their shoes each morning.  The energy/climate legislation is the battle for the coal industry’s life, and it will fight like a cornered wildebeest.  Just like the tobacco industry, which has been fighting for its life in the courtroom for the past decade, coal is going to throw every conceivable resource at this proposed energy legislation to pull out a win.  It will be ugly, and I wouldn’t bet against the coal industry.

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