Nation's power demands point to profitable year for coal industry

London (Platts)--13Feb2006

Coal consumption, production and prices are expected to grow in 2006, thanks
to the current high prices of oil and natural gas. 

Domestic demand comes not only from utilities but also from transportation and
industrial sectors, an economist for the National Mining Assn. said, and the
emerging technologies of coal liquefaction and gasification will open new
markets. 

"NMA is seeing a fundamental shift in attitudes about coal and that shift has
to do with the nation's appetite for electricity, the high price of gas and
oil and concerns about the availability of other fuel sources," Connie Holmes,
senior economist with NMA, said at a Washington (D.C.) Coal Club luncheon last
week. 

The federal Energy Information Administration's short-term energy outlook for
February supplied the data to back up Holmes' predictions. According to the
EIA report, electricity demand for coal is projected to increase by 1.2% in
2006 and by another 1.4 % in 2007. 

NMA's predictions differed slightly. In 2006, electric generators are expected
to use 1.053 billion tons, 1.3% more than the 1.040 billion tons they used in
2005. The increase in electricity generation is expected to be lower in 2006
than in 2005, somewhere in the 1.8%-2.2% range, compared with a 2.2% increase
in 2005.

Coal production may increase 
Both EIA and NMA forecast coal production will grow. EIA states coal
production is likely to grow by 2.7% in 2006 and that the price of coal is
expected to rise by an average 7.0% in 2006 and by an additional 2.8% in 2007,
increasing from $1.54/mmBtu in 2005 to $1.70/mmBtu in 2007.

In 2006, NMA is forecasting domestic coal production will total 1.156 billion
tons, a 3.2% increase over the 1.138 billion tons produced in 2005. Eastern
coal production, primarily from Appalachia, Illinois, Indiana and western
Kentucky, will reach 500 million tons, 3% more than the 498 million tons in
2005, while western coal production from the Powder River Basin will rise to
656 million tons in 2006, up from 640 million tons in 2005.

EIA sees total U.S. coal production coming in just under 1.2 billion tons. In
its report, EIA said coal production in the western region will grow to about
600 million tons, the Appalachian region about 400 million tons and the
interior region will produce just under 200 million tons.

Total coal demand in 2006, including exports, will reach 1.187 billion tons,
1% higher than the 1.175 billion tons in 2005. As additions to production
capacity come on line and the coal hauling capacity of the railroads,
especially in the West, improves, coal stockpiles and consumer stocks will
increase somewhat in 2006. In 2005, consumer stocks declined by roughly 12
million tons, but in 2006 they are expected to show a 12-million-ton increase.


Imports will increase to 36 million tons in 2006, up from 30 million tons in
2005. NMA said Colombia, Venezuela and Indonesia together will supply nearly
90% of imports with Colombia leading the way. 

Total coal exports are expected to be 46.5 million tons in 2006, NMA said.
Overseas shipments of U.S. metallurgical coal will remain unchanged at 23
million tons. Major markets continue to be Brazil, Italy, Spain and Turkey.

In 2005, steel production in the United States totaled 103 million tons, down
5.7% from 109 million tons in 2004, NMA said, thereby, reducing the amount of
metallurgical coal needed. Met coal used in steel mills is projected to
increase this year by 500,000 tons to 24.5 million tons, as domestic
production offsets a continuing decline in imports of coking coal, said NMA. 
 
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