Rising natural gas prices could boost coal use

New York (Platts)--13Dec2005

Over the next 25 years, the Energy Information Administration is predicting
that coal consumption to fuel electricity generation would drop then rise in
reaction to rising natural gas prices. 

At the same time, coal-to-liquids markets, a category of coal hardly mentioned
in the 2005 outlook, will grow, primarily stimulated by higher oil prices,
also boosting national coal consumption. 

Coal production would build over the period, from 1.08 billion tons in 2003 to
1.7 billion tons in 2030, an increase of 1.6% annually, the Annual Energy
Outlook 2006 projected. Consumption would remain slightly above production,
except for the 2010 timeframe, with imported coal filling the gaps. 

"Growth in coal consumption is projected to accelerate after 2020, as coal
captures electricity market share from natural gas and as coal use for
coal-to-liquids production grows," the report said. In the long term, coal
will capture electricity market share from natural gas until coal-fired plants
account for 57% of all electricity generation in 2030. 

The model EIA used for its base case includes much higher world oil prices
than were projected in 2005, reflecting the current market, which EIA does not
see dropping significantly. In a change of methodology for oil prices, this
year's report switched to use the average price of imported low-sulfur crude
oil to U.S. refiners, which more closely matches that reported in mass media,
the Dept. of Energy agency said. In previous reports, the oil price was the
weighted average of all crude oil imported into the United States. In the
projections, the price of oil for 2025 would be $54.08/barrel, $21 higher than
projected last year, and the price in 2030 would be $56.97/barrel.

EIA: Domestic prices stay flat 

However, the price of domestic coal would remain relatively flat, following
the EIA model. For 2003, the cost of domestic coal at the minemouth was
$18.40/ton, bounces up to $22.23/ton in 2010, then drops back to $20.39/ton in
2015 and rises to $21.73/ton by 2030 (all in 2004 dollars). 

EIA predicted that the delivered price of coal will "decrease modestly" to
about $1.40/mmBtu (in 2004 dollars) by 2019, caused by continuing increases in
productivity and "a continuing shift to coal from the Powder River Basin in
Wyoming." After that, prices would rise slightly to $1.50/mmBtu by 2030 "as
rising natural gas prices and the need for baseload generating capacity lead
to the construction of many new coal-fired generating plants." 

The agency projected 174 GW of new coal-fired generating capacity, including
19 GW at coal-to-liquids plants, would be constructed between 2003 and 2030.
Natural gas-fired capacity would rise to 140 GW for the same period. 

Carbon emissions are projected to increase 1.2%/year through 2030, while the
carbon intensity of the economy (energy-related carbon dioxide
emissions/dollar of gross domestic product) would decline about 1.7%/year
through 2030. 

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