Thursday, February 7, 2013

Exporting the Problem

(c) Edward Burtynsky
A few years ago, I bought a terrific book of photography by Edward Burtynsky called Manufactured Landscapes.  Among the subjects was ship breaking, where old ships are disassembled and most of the components are recycled. Sounds good, but many old ships are full of environmentally hazardous substances (PCBs, asbestos, lead paint, etc.), so most ship breaking now occurs in coastal regions of Bangladesh, Pakistan and India that are not "burdened" by modern health and environmental regulations.  Burtynsky's powerful photos showed these monolithic ship hulls surrounded by small armies of barefoot peasants scavenging the wrecked carcasses.  With ship breaking we essentially export our terrible pollution to these third world countries.

I couldn't help but think of these images when reading about the recent boom in exporting thermal coal to Europe to replace more expensive natural gas in electricity generation.  It's a natural market reaction to cheap shale gas  displacing coal in U.S. power generation.  Coal producers have successfully found alternate markets for thermal (or "steam coal") in Europe, which has allowed big producers to maintain strong profits for now.  The export phenomenon likely will cause further ripple effects in the coal industry and lead to a round of corporate consolidation as smaller producers will struggle to compete against larger companies with the wherewithal to export coal.

Coal producers are hurriedly planning and building export facilities on the West Coast and Gulf Coast to take advantage of the current market opportunity.  Cheap natural gas from shale doesn't look like it's going away any time soon and with increased pollution controls coming for coal power plants coal faces a darkening future in the U.S.  Export is the best option for coal and from a competitive perspective Europe is the best opportunity.

The downside of Europe is that many analysts believe that this boom will not last much past 2015, as increased environmental regulation in the European market will lead to the phase out of some coal plants.  At the same time LNG prices likely will slowly de-link from oil prices and quantities going to Europe will increase.  This trend will accelerate if LNG exports from the U.S. are approved (another shale gas impact).

China and India are the next obvious target markets, but coal faces increased competition from nearby suppliers like Australia.  Both nations are building coal plants to try to keep up with the rapid pace of urbanization, and coal is the fuel of choice for now.  But given the atrociously poor air quality recently suffered in Beijing and the speed and directness at which the Chinese central government gets things done, one has to wonder how long it will continue to squeeze out coal plants like so many monopoly houses.

Keep an eye on the machinations in the U.S. coal industry over the next several years.  It will be a story of adapting to global change, an evolving way of life in Appalachia and corporate battles.  In other words, good drama.


Anonymous said...

This situation is analogous to the cigarette industry in the United States. When the US government came down hard on the industry to disclose the effects of its carcinogenic products, the industry then began exporting its poison to lesser developed countries, where any product could be sold with impunity.

Robert Hutchinson said...

Funny you say that. I've long equated the coal lobby with the tobacco lobby.

Both very powerful pushers of harm.

Both slowly losing power.