Coal Prices (updated June 25, 2006)

This report summarizes spot coal prices from the business weeks ended May 5 through June 23. Because of data review priorities in EIA at this time, text beyond the following spot price graph and table has not been revised. The spot price table has been revised to show at a glance the last reported and subsequent price changes. All prices are for prompt-quarter delivery unless otherwise noted (Coal Outlook, May 1 – 29 and June 5 – 26, p 2). Please note that the definition of “prompt quarter” in the graph below has been updated per the November 2005 Platts “Methodology and Specifications Guide – Coal.”

Average Weekly Coal Commodity Spot Prices Business Week Ended June 23, 2006

1 Coal prices shown are for a relatively high-Btu coal selected in each region, for delivery in the "prompt quarter.” The prompt quarter is the quarter following the current quarter. For example, from January through March, the 2nd quarter is the prompt quarter. Starting on April 1, July through September define the prompt quarter. Source: with permission, selected from listed prices in Platts Coal Outlook, "Weekly Price Survey." Note: the historical data file of spot prices is proprietary and cannot be released by EIA; see http://www.platts.com/Coal/. >Analytic Solutions>COALdat, or >Newsletters> Coal Outlook.

Market Developments (updated April 28, 2006)

Over the past month and a half, NAP spot coal prices have been flat or declining (graph above). ILB spot prices spiked from 34.50 to 43.00 for 2 weeks in mid-March but have since stepped down to $35.00. On balance, the spot market has not been active or rising, which may have been because of a mild late-winter/early-spring transition and because coal deliveries under new contracts apparently had priority during the first quarter of 2006. Eastern coal consumers, especially power plants, were able to maintain higher stockpiles in 2005 than were PRB coal customers. First quarter earnings reports from large CAP and NAP coal producers reported improved coal sales attributed to customers (mostly electric power producers) rebuilding end-of-2005 coal inventories during relatively mild weather. The increased shipments would also include some of the newly certified contracts with 2006 start dates. With railroad capacity stretched thin, coal buyers holding coal contracts for 2006 have been loath to initiate spot buys – even if prices are slightly below their contracts – that would in effect be competing with their own contract coal for rail access.

As common carriers, railroads are required to respond to new service requests, but they are not required to offer attractive rates – and recently they have not – for new business and spot hauls, which might force them to under-deliver on their term contract volume commitments. Meanwhile, some shortfalls in international coal deliveries, along with low exchange rates for the dollar versus the Euro, have added increased coal exports to Europe, both high-sulfur and low-sulfur (Coal Outlook, April 24, p 3).

Speaking about Consol Energy’s 1Q05 earnings, J. Brett Harvey, president and CEO, noted that the “pricing environment for our coal is excellent, allowing us to grow our revenues and to achieve our primary goal of expanding our margins." Put more directly, Mr. Harvey noted that forward price curves for Pittsburgh 8 coal (accounting for most of Consol’s production) are higher than current spot market prices, and that as new “scrubbers are installed and retrofitted, we believe that the price of Northern Appalachia coal will converge with Central Appalachia pricing.” He expected currently unpriced coal for 2007 shipment to be at least 20 percent higher than business already booked. Mr. Harvey also referred to a multiyear coal sales agreement with Duke Energy, signed in February, as validation of Consol’s decision to expand its markets for NAP coal to serve power plants with scrubbers (U.S. Coal Review, May 1, p 5).

In recent years, as CAP mines have been moving into more difficult mining conditions in remaining reserves, mine operators have not been able to expand production significantly. Nonetheless, CAP is still the highest producing coalfield in Appalachia. After reaching a high of 281.8 MMst in 1997, CAP production decreased as far as 230.1 MMst in 2003. Production did increase, however, by 3.1 MMst in 2004 and by 2.6 MMst (to 235.8 MMst preliminary) in 2005, or about 1 percent each year. In some months CAP still produces more coal than NAP and ILB combined (see graph below). Future mining capacity In NAP and ILB is not as constrained as in CAP because deep but relatively thick longwall-minable coal is still accessible in NAP and large reserves of relatively thick and flat-lying coal are available in ILB, albeit deeper on average than mined in the past. Still, the expected increases in production in those two coalfields have not yet been seen.

Alliance Resource Partners increased its ILB coal reserve holdings by 18 percent, to 642 MMst, when it acquired the River View mine and property in western Kentucky. Production from the reserves is planned to resume as a 3.5 MMst per year underground mine in 2008 or 2009. Also in ILB, Vectren Fuels plans to open two new mines in southwestern Indiana, one in 2009 and one in 2010. The new mines will produce 8 MMst per year, upping the company’s Indiana production by 4 Mmst over the output from its Prosperity and Cypress Creek mines, which are expected to exhaust their reserves by 2008 or 2009 (Coal Outlook, April 24, pp 4, 5).

Foundation Coal is ahead of schedule on an upgrading project at the Wabash mine in Illinois. The $50 million project will add a new slope, an overland conveyor, and handling facilities. It is expected to be complete in the second half of 2007 and to improve the mine’s efficiency and lower costs. Although the project will increase production by only a small amount - from 1.8 million to 2.0 Mmst per year – it will allow miners to reach the active face much faster. Foundation can then seal off a large part of the mine that is costly to maintain. Further, the added production will not require additional labor to extract. Before the old workings are closed and sealed, Foundation may also mine, via the old slope entry, some additional 500,000 or more short tons of high-sulfur coal located in a higher coal seam. These tonnages are expected to be a good market fit when the retrofit scrubbers now in planning and construction come on line. Two other new mines in planning at Foundation – in West Virginia and Pennsylvania – will not be operational for at least 4 or 5 years, according to Foundation CEO Jim Roberts. The permitting will take several years and development of the mines will take additional time because both will have slope entries (U.S. Coal Review, May 1, p 4).

In Wyoming, Foundation Coal is expanding its Belle Ayr mine from a capacity of 20 Mmst per year to 25 Mmst. Besides a large overburden shovel and additional haul trucks, put into service in 2005 to speed mining, a new coal conveyor system is slated for operation in latter 2007. This would reduce truck haulage, and thereby trim diesel and tire costs at Belle Ayr (U.S. Coal Review, May 1, p 4).

If the rail capacity is there to haul it and there are no major production problems, Arch Coal could increase PRB coal output by 20 MMst in the next few years at its Coal Creek and Black Thunder mines. Arch is counting on an additional third rail line on the 18-mile section of track south of the Reno junction, right where Black Thunder mine’s rail spur joins the main line (U.S. Coal Review, May 1, p 7).

Union Pacific railroad noted that production problems at two mines in the Uinta Basin – one in Colorado and one in Utah – resulted in a 2.2 MMst shortfall in 1Q2006 coal volumes compared with one year earlier. The mines were shut down late last year following a roof collapse in one and persistent heat and gas conditions in the other. The problems were not resolved through most of 1Q2006.

Coal Technology (updated April 24)

After years of working in the background, researchers in coal gasification and liquefaction processes are experiencing a wave of interest and publicity since the signing of the Energy Policy Act in 2005 (EPACT05). Investors are aggressively pursuing new plant development opportunities. Among other incentives, EPACT05 will provide loan guarantees for coal gasification-based power generation, alternative clean coal power generation projects, and coal-to-liquids plant development. Well before EPACT05, the U.S. Department of Energy (DOE) and some companies in the United States have been testing and advancing coal gasification and coal liquid fuels technologies. Most processes for coal gasification and coal-to-liquid (CTL) fuels are adapted from Fischer-Tropsch and/or Hirshfelde technologies developed in Germany in the 1920’s and 1930’s and used to convert coal to liquid fuel in Germany during World War II. There are decades of experience using them.

Gasification plants of many kinds are operating at numerous locations worldwide. DOE’s National Energy Technology Laboratories compiled a database of gasification plants in 2005 that lists 385 operating gasifiers in the world, 48 of them in the United States. Measured in terms of syngas energy output, the leading countries are South Africa and China. Africa/Middle East, with 25.1 megawatt-hours heat output (MwtHOut) is the leading region for gasifier capacity, followed by Asia/Australia, then by Europe (see Table below). Sasol/Lurgi is the leading technology, followed by GE Energy gasifiers and Shell gasifiers.

A largely coal-based liquid fuel has successfully powered a military helicopter jet engine. Dr. Harold H. Schobert, professor of fuel science and director of Penn State's Energy Institute, announced that the tested fuel was 50 percent derived from coal. "We have shown in tests that the mix can go to at least 75 percent coal," Dr. Schobert said. The fuel, called JP900, is produced by mixing light cycle oil, which is a petroleum byproduct, coal-derived refined chemical oil, a byproduct of the coke industry, and hydrogen to produce a distillate that meets or exceeds almost all specifications for military JP8 and commercial Jet A fuel. The fuel is very low in sulfur. Originally, the project aimed to develop jet fuel for the next generation of high performance aircraft that would require very thermally stable fuels. Now that fuel prices have soared, the project was redirected to more immediate benefits such as lowering fuel costs, developing secure fuel sources, and decreasing dependence on foreign oil. Ongoing research will involve producing additional quantities for testing in Air Force applications that could also lead to commercial aircraft use (Penn State News, “Coal-based jet fuel poised for next step,” March 27).

Coal Mine Safety (updated April 27, 2006)

Since the previous update of coal mining deaths in 2006, which was in late February, an additional five mining-related deaths have occurred, bringing the year-to-date total to 26. Although the rate of fatal incidents has declined (five in the more recent 8 weeks versus 21 in the first 8 weeks of the year), 2006 is on course to become a memorable reversal to recent annual safety statistics. According to Mine Safety and Health Administration (MSHA) records, eighteen fatalities have occurred in West Virginia, five in Kentucky, and one each in Maryland, Alabama, and Utah (see below).

The number of recent coal-mining fatalities may have been less remarkable had the deadly January 2 Sago mine explosion and fire occurred 2 days earlier. Instead, the high-fatality event (12 miners killed) got the New Year off to a tragic start. According to an investigation by the mine owner, International Coal Group (ICG), the West Virginia mine explosion may have been triggered by an unusually large lightning strike at the surface. With stricter safety measures in place and ventilation controls rebuilt, normal operations resumed on March 15 (Argus Coal Weekly, March 17, p 4).

MSHA approved two types of hand-held, portable radios for use in underground mines. Approval of these two models may fill a void, giving mine operators better options for communicating underground and improving the safety of miners. Also, MSHA and the National Institute for Occupational Safety and Health (NIOSH) conducted open meetings on April 18 at the National Academy of Sciences auditorium in Washington, DC, on Mine Escape Planning and Emergency Shelters. Participants reviewed proper mine escape planning, escape technologies, experience in other countries with in-mine emergency shelters, and features and availability of emergency shelters. Nine companies presented information on emergency shelter installations and manufactured systems. Some researchers and Government safety specialists recommended simple, common sense approaches such as mined-out chambers in the pillars (the walls of coal left in place to support the roof), sealed behind air-tight doors and stocked with breathing devices, or connected to pre-drilled ventilation holes to the surface. A similar approach would seal both ends of unused cross cuts (the passages between coal pillars) and set them up as refuge areas. In-mine shelters are inherently temporary, however, and successful only in conjunction with other measures and better planning. A shelter is an option meant to extend the time that trapped miners can be kept alive and conscious, to improve their chances of rescue. A central issue at the meeting was whether adding shelters in mines would distract from what some felt is the most effective response – for miners to evacuate the mine as quickly as possible (Pittsburgh Post-Gazette, April 23). It seems likely that a combination of several planning, training, and preparation approaches will be recommended.

At an April 20 meeting of the International Mining Health and Safety Symposium, held in Wheeling, WV, Davitt McAteer returned to a topic he has urged in the past – the need to push for interdisciplinary technology applications to improve mine safety. Mr. McAteer, who is a former MSHA chief and West Virginia Governor Joe Manchin’s representative and advisor on the Sago mine incident, said that the symposium is drawing on such divergent groups as NASCAR and NASA (the National Aeronautics and Space Administration) for expertise that could be applied to safer mining and better underground communications (Coal Outlook, April 24, p 14).

Environmental News (Updated May 5, 2006)

On March 28 at the EPA spot auction, 125,000 vintage 2006 SO₂ allowances were sold for prices averaging $883.10 per short ton. The clearing price (the lowest winning bid) was $860.07. More recently, on May 4, year 2006 SO2 allowances traded for an average price of $624.25 and sold as low as $620.00 (Evolution Markets, May 4). Over the past 5 months, SO₂ allowance have now fallen by more than $1,000 from their December 9, 2005, settle price record of $1,630. Year-2006 and later-year SO2 allowances are now back to prices not seen since late 2004. The lowered allowance costs and stabilizing spot prices for low-sulfur, low-Btu PRB coal are inter-related.

A few of the new crop of flue gas desulfurization units have started to phase in, but impacts will be more significant as the 2010 lowering of emission caps gets near. The influence of retrofit scrubbers could eventually constrain high volatility in future SO₂ emission prices. Although NAP and ILB coals, and off-spec CAP coal (with Btu below specified levels or with sulfur content above specified levels) are expected to gain market share because of the addition of flue-gas scrubbers at scores of generating units, it should to take until 2011 for all the first wave of anticipated scrubbers to be built and installed. EIA's AEO2006 forecasts project 90.6 gigawatts of coal-fired generation retrofitted with new scrubbers by the end of 2011. That total would be nearly 2 times the 102 gigawatts of scrubbed coal-fired capacity on line in 2004. (EIA projects continuing retrofits beyond 2011, reaching 132.7 gigawatts of cumulative retrofits by 2020 and 140.6 gigawatts by 2030.)

U.S. Senator Dianne Feinstein of California is circulating a cap-and-trade proposal for greenhouse gas (GHG) emissions. She is seeking comments at this stage from legislators, lobbyists, and interest groups. The proposal targets industrial facilities such as power plants and refineries that emit more than 10,000 metric tonnes of carbon dioxide equivalent per year. According to the proposal, the United States Environmental Protection Agency (EPA) would set up a cap-and-trade system for GHG with the cap initially be at today’s levels, until 2011. The cap would be reduced by 0.5 percent annually from 2011 through 2015 and by 1.0 percent from 2016 through 2020.

The use of GHG offsets would be encouraged and unlimited. Industries would use three means to reduce GHG emissions: (1) actual reductions through fuel changes or energy efficiency improvements, (2) creating offsets to counter an equivalent amount of GHG through plantings or by some other means, or (3) a combination of both. No carbon emission allowances would be sold in the U.S. but industries could submit internationally tradable emissions certificates for up to 25 percent of their cap. Senator Feinstein’s draft legislation will probably be the first new GHG trading plan in the Senate this year (Coal Trader, April 20, p 4).

Coal Supplies (updated May 11, 2006)

Coal inventories are monitored at plants that generate electricity (utilities, independent power producers, and industrial and commercial plants with generation capacity). In both January and February 2006 those inventories increased from prior month levels – by 3.2 MMst in January and 0.5 MMst in February (see graph below). January and February also represent the first monthly year-over-year coal inventory increases since 2002, based on EIA's early-release "Electric Power Flash" estimates. Statistics prior to February are based on revised or final data from EIA's latest Electric Power Monthly. By historical standards, coal stockpiles continue to be low: they stood at 105.0 MMst at the end of February 2006, up from 101.2 MMst in December 2005. But these levels are low relative to the 106.7 MMst in December 2004 and 121.6 MMst in December 2003.

Calculated days of consumption represented by coal stocks increased from 34 days at the end of December 2005 to 37 days in January 2006, then to 36 days by the end of February. By comparison, ending February coal stocks in 2005 equated to 34 days' consumption and in 2003 to 38 days' (see graph). Days of consumption levels normally decrease between December and February because of heavy winter consumption before the spring "shoulder months," when weather and planning encourage rebuilding inventories for summer consumption. Compared with the same period in 2005, coal consumption for January and February 2006 was down by 2.2 percent, based on milder winter weather in 2006 in the coal-burning areas.

Coal exports continue to grow. After significant growth in 2004, to 48.0 MMst, the trend carried over through 2005, which ended with 49.9 MMst (EIA, Quarterly Coal Report, Table 7, March 17, 2006). U.S. coal exports continue to be led by metallurgical coal, with 28.7 MMst in 2005. This was 6.8 percent higher than the 26.8 MMst exported in 2004. On the other hand, coal imports were also up in 2005, with 30.5 MMst, surpassing the 27.3 MMst imported in 2004 by 11.7 percent.

Coal exports in January and February decreased by 0.7 MMst and 2.2 MMst, respectively, from prior month levels. Exports for the first 2 months of 2006 totaled 6.8 MMst, compared with 7.0 MMst for January and February 2005. During the same periods, coal imports increased by 1.4MMst compared with 2005, for 5.7 MMst of coal exports in January and February 2006. The net exports of coal came to 1.0 MMst for January through February 2006 (National Mining Association, International Coal Review, March and April 2006).

Metallurgical Coal (updated May 2, 2006)

Jim Walter Resources sealed a large share of its annual metallurgical coal contracts for average prices around $115 per metric tonne, F.O.B. Mobile. The contracts run from July 2006 through June and apply to Walters’ high-quality, low-volatile coking coal from the Blue Creek seam. The coal will be shipped to European and South American customers (U.S. Coal Report, May 1, p 10).

The graph below, and its downloadable data file include data available through 1Q 2006. They show quarterly average values based on coal cost data EIA collects from coke plants. They also depict monthly average values declared for met coal brought to ocean terminals for export, from U.S. Customs data. The values reported include the costs of transporting the coal to the coke plants or export districts. The quarterly data collected from coke plants show an average increase of $6.99 per short ton in delivered price of metallurgical coal. The February data for coking coal transported to export docks reflect a $5.27 per short ton rise over January in average declared value. Unlike most prices reported in coal newsletters, the values below are based on surveys of actual shipments. These prices are about 2 months old, however, when they are first available and do not address future prices. Because the prices below are averaged and include met coal shipments from multi-year contracts and traditional 12-month contracts - and not just spot shipments - variances are less extreme than in some spot price reports.

Download Met Coal data files. (Excel Format)

Coal Production (updated May 2, 2006)

Estimated monthly coal production for March 2006 was 102.6 MMst (see graph below). The March EIA estimate amounts to a 14.2 percent, or 12.7 mmst, increase from February’s 89.9 mmst. The March production estimate is slightly higher (0.3 MMst) than that of March 2005.

Revised estimates of year-end production total 1,133.3 MMst for 2005, which is 21.2 MMst, or 1.9 percent, greater than the final production for 2004. The U.S. Monthly Coal Production graph (below) includes production based on revised mine-level reports for all four quarters of 2005 by the Mine Safety and Health Administration (MSHA). It also shows preliminary EIA Weekly Coal Production estimates for all of 2005 and for January through March 2006.

Note:This graph is based on MSHA-based revisions all four quarters of 2005 and on preliminary EIA production estimates for January through March 2006.

Transportation (updated May 2, 2006)

In the PRB, the Union Pacific (UP) reported disappointing coal shipment totals for 1Q06 owing to missed trains – 140 because of mine operation problems and 114 because of “Joint Line issues and rail operations.” UP is still projecting a 10 percent increase over its 2005 PRB shipments but is quick to acknowledge that there is “very little slack . . . in the supply chain.” The Joint Line repair program resumed on April 3 and “although we don’t expect a significant impact on loadings,” according to UP Executive Vice President, Jack Koraleski, the fact that one track will be under repair (mostly in triple-tracked areas) and other changes will be ongoing “does add vulnerability to an already complex operation” (Coal Outlook, April 24, p 9). As in the past, any trainload, or “slot,” that is missed cannot be made up and increasing coal shipments depends on all links in the supply chain being on time while improving average cycle times, by a few hours or even by mere minutes over the course of the year.

Burlington Northern Santa Fe (BNSF) reported record loadings of coal and an all-time best for first-quarter earnings performance. BNSF coal revenues rose by $82 million, or 14 percent, due in part to loadings of 67 million tons of coal (U.S. Coal Report, May 1, p 8).

While recognizing the tremendous achievements of BNSF and Union Pacific railroads in transporting more than 400 Mmst of coal out of the PRB each year, Kevin V. Schieffer, president and CEO of Dakota, Minnesota& Eastern Railroad (DM&E) has been addressing electric power and coal conference attendees for several months. His message was that the time is now for shippers to make themselves heard and to take a position on the DM&E PRB extension. Pointing out that the demand for PRB coal continues to grow - possibly beyond the practical reliable limits of the single Joint Line to handle it - Mr. Shieffer extols current and potential PRB coal customers that “inaction of supporters” could bury the DM&E project. Speaking at the National Coal Transportation Spring Meeting in Napa, CA, on April 17, Mr. Schieffer told attendees that DM&E is working to have financing in place this year so that construction can begin in 2007. Under that projection, the first hauls of PRB coal via the DM&E would start in 2009 (U.S. Coal Review, May 1, p 7). He says that the DM&E $2 billion project would offer shippers of Wyoming PRB coal an alternative to the overtaxed Joint Line and just by being in the mix, the DM&E would help put a lid on the escalating rates recently available from the existing duopoly.

Kinder Morgan announced a long-term agreement with Drummond Coal Sales to partner on a $70 million expansion of the coal import dock at Pier IX Terminal in Newport News, VA. The project is expected to increase throughput at the dock by 30 percent and to be operational in early 2008 (Coal Outlook, April 24, p 10). Of more immediate interest, Genessee & Wyoming railroad, which holds interests in 12 U.S. short lines, reported a 4.7 percent increase in North American coal carloadings from January through March, versus the same quarter in 2005. Some of that increase may have fed the surge in Great Lakes coal shipments in March. The Lake Carriers’ Association reported 41.8 percent more coal loaded in March than 1 year earlier. Shipments had also been up smartly in January, by 1.7 MMst, or 42 percent, year over year. The Association claimed that loadings would have been higher if its members could load the vessels completely. “Decades of inadequate dredging” were blamed for chronically keeping drafts shallower than project depths and constraining full loading even during peak water levels on the Lakes (Coal Outlook, April 24, p 11).

Jim Walter Resources in Alabama recently renegotiated its transportation contract with CSX at a reported incremental cost of approximately $2.00 per short ton. Walter added, however, that its new 4-year contract will ensure better transportation reliability and cost protection over the long term (U.S. Coal Review, May 1, p 10).

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