Mid-term coal demand to remain flat

October 21, 2013 | By Barbara Vergetis Lundin

An increasing number of new gas builds are projected to meet reserve margin needs due to nearly 60 GW of coal retirements projected over the next four years in response to environmental and fuel market drivers, coupled with moderate demand growth as the economy continues to recover, according to ICF International energy consultants. The impact of coal generation units retiring or becoming more expensive to operate will drive prices upward, especially in the Midwest and Southeast, where most coal capacity is located.

Credit: Fletcher6/Wikimedia Commons

In the coal markets, near-term, weather-driven demand has moderated coal consumption. International prices are down from the past three years, making U.S. coal less competitive and reducing U.S. exports in 2013 compared with record high exports in 2012, according to ICF. With gas prices expected to remain low for the next several years and electric load growth at moderate levels in many areas, domestic coal demand will remain flat in the near- to mid-term with a gradual decline starting in 2025, the report notes.

In the gas market, according to the report, producers have maintained output despite a decline in rig counts due to high yields from the shale plays. The lack of gas processing capacity in the Marcellus natural gas production basin, located in the Northeast United States, has resulted in higher volumes of marketed gas because of "ethane rejection."

This strong supply environment, combined with relatively weak demand due to mild summer weather, has resulted in gas prices of $3.50 per million British thermal units or below throughout most of the U.S. While ICF expects gas prices to remain soft for the next 18 to 24 months, beyond that, prices are expected to firm rapidly as demands from new petrochemical plants, LNG export terminals, and pipeline exports to Mexico start ramping up in 2015. These new demands, combined with increases in demand resulting from expected coal plant retirements, will place significant upward pressure on gas prices and increase the potential for price volatility through the end of the decade.

For more:
- see this report

http://www.fierceenergy.com/story/mid-term-coal-demand-remain-flat/2013-10-21