November 28, 2020

U.S. Coal Companies Scale Back Export Goals

HOUSTON — The ailing American coal industry, which has pinned its hopes on exports to counter a declining market at home, is scaling back its ambitions as demand from abroad starts to ebb as well.

Just south of here, New Elk Coal terminated its lease late last month at the Port of Corpus Christi, where it had hoped to export coal to Brazil, Europe and Asia. Two days later, when the federal government tried to auction off a two-square-mile tract of land in Wyoming’s Powder River basin, a region once poised to grow with exports to Asia, not a single coal company made a bid.

They were the latest signs that a global coal glut and price slump, along with persistent environmental opposition, are reducing the likelihood that additional exports could shield the industry from slipping domestic demand caused by cheap natural gas and mounting regulations.

United States coal exports this year are expected to decline by roughly 5 percent from last year’s record exports of 125 million tons, and many experts predict the decline will quicken next year.

At the beginning of 2012, the coal industry had plans to expand port capacity by an additional 185 million tons. But those hopes have faded this year.

“Global coal prices right now are not supportive of large-scale U.S. coal exports,” said Anthony Yuen, a Citigroup energy analyst.

European demand is soft, and the economies of the developing world are slowing. But the main reason for the slumping prices is China’s softening demand growth, experts say.

For most of the last decade, China’s soaring thirst for energy accounted for more than 50 percent of world coal demand, driving up international coal prices and stimulating mining activity across Australia, Indonesia and as far away as Colombia and South Africa. With Australia and Indonesia straining to produce for China, South Korea and Japan increasingly looked to the United States for future supplies, stimulating interest in the building of several export terminals in Oregon and Washington State and on the coast of the Gulf of Mexico.

But over the last few months those hopes appear to be receding with a reshaping of global coal markets. After years of mounting imports of coal to fuel its growing economy, China has taken a number of steps to slow those imports. It has modernized domestic mines, made coal-fired electricity plants more efficient and stepped up development of nuclear and renewable power.

On Thursday, China announced a ban on construction of new coal-fired plants around Beijing, Shanghai and Guangzhou to control air pollution. The plan will shift new power plant construction to natural gas, nuclear and solar power. Those initiatives, along with slowing Chinese economic growth, have undercut expectations for rising imports and helped produce an overabundance that has sent world coal prices plummeting by more than 30 percent from last year. In response, international coal companies are scaling back mining and shelving export projects from Australia to the Gulf of Mexico, especially for thermal coal used to produce electricity.

“We’re seeing the beginnings of a big structural shift, particularly in the Chinese energy sector,” said Richard Morse, managing director at SuperCritical Capital, an energy consultancy. “For global markets, this is a significant bearish signal for coal.”

In the United States, a half-dozen planned export terminals in the Pacific Northwest and in the Gulf of Mexico have already been canceled over the last year because of poor economics and political opposition. Shipping experts said that if weak coal prices endured for a few more years, financing could be jeopardized for a handful of the remaining ones.

International coal prices have been slumping for about a year. The Newcastle coal benchmark spot price, which early last year rose to as high as $120 per metric ton, declined through much of 2012 to below $90, and finally fell below $80 this summer.

American coal prices are also down, but they have revived somewhat in recent months along with natural gas prices. Some utilities have switched from gas back to coal. Still, coal now constitutes less than 40 percent of United States electrical generation, down from 50 percent a decade ago, and East Coast producers are struggling.

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Power vs. Profit

Balking at the high price of coal that fuels much of China’s electricity grid, the nation’s state-owned utility companies are defying government economic planners by deliberately reducing the amount of electricity they produce.

The power companies say they face financial ruin if the government continues to tightly limit the prices they can charge customers, even as strong demand is sending coal prices to record levels. The chairwoman of one giant utility, China Power International, recently warned that one-fifth of China’s 436 coal-fired power plants could face bankruptcy if the utilities cannot raise rates.

The utilities’ go-slow tactics include curtailing the planned expansion and construction of power plants, and running plants for fewer hours a day. And in a notable act of passive defiance, the power companies have scheduled an unusually large number of plants to close for maintenance this summer — right when air-conditioning season will reach its peak.

So far there have been no public confrontations between Beijing officials and utility executives. But the dispute indicates that China’s unique marriage of market competition and government oversight may be starting to fray after three decades of phenomenal economic success.

“The Chinese electricity companies are firing a shot across the bow, and essentially saying they’re not going to just sit there and take massive losses,” said Jeremy C. Carl, a Stanford University researcher on Chinese energy issues. “It’s almost the equivalent of a corporate sick-out.”

The official Xinhua news agency reported late Monday that the country’s main electricity distribution company, the State Grid, had warned that power shortages this year could be worse than in 2004, when China had its worst blackouts in decades. That year, the problem involved railroad bottlenecks in getting coal to power plants — an issue largely resolved with the subsequent investments in more rail lines.

This time, the impasse between government and industry is not the only cause of China’s electricity shortages. Surging electricity demand is also a factor.

China’s 700 million rural residents have been on a two-year buying spree of electric devices, purchasing hundreds of millions of air-conditioners and other energy-hungry appliances with government subsidies aimed at narrowing the gap in living standards between cities and rural areas.

In a little-noticed milestone, the latest data from Beijing and Washington shows that China passed the United States last year as the world’s largest consumer of electricity.

Since March, responding to the power shortages, government officials in six provinces have begun rationing electricity, including here in Hunan province. At least five more provinces are preparing to do so, according to official reports.

In Yiyang, a town of 360,000 in south-central China, electricity shortages are so severe this spring that many homes and businesses receive power only one day in three. Even gasoline stations in this region are silent more days than not, because the pumps lack electricity.

Meanwhile, blackouts are starting to slow the nation’s torrid growth of energy-intensive industries like steel, cement and chemicals. Unlike garment makers and other small manufacturers, the big factories cannot easily switch to backyard diesel generators.

To accommodate businesses that do use diesel back-ups, China last week banned exports of diesel fuel to conserve scarce supplies.

The power cuts are a reason the year-on-year growth rate of China’s industrial production dipped last month — to 13.4 percent in April, down from 14.8 percent in March — and seems to be continuing to fall.

The lower productivity of factories, plus high diesel costs for those using generators, is likely to further raise average prices of American imports from China. Prices of Chinese exports are already up 2.8 percent in the last 12 months, after years of gradual decline that helped restrain inflation in the United States.

Michael Wines contributed reporting from Wenzhou, China, and Jonathan Kaiman contributed research from Beijing.

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