In Commodity News 01/02/2016
US coal miners are finding that structuring production so it flexes in tandem with demand a tough conundrum to solve as natural gas takes a larger share of baseload generation, a panel of producers told the CoalTrans 2016 conference in Miami.
The challenge, said Nick Glancy, the president of Lexington, Kentucky-based Blackhawk Mining, is how “producers can structure operations to serve essentially peaking plants.”
“I know utilities, if you could give it to them — but so far they are not willing to pay for it — but if you can give them flexibility on a monthly or quarterly basis, you would have a lot of takers,” said Glancy. “But you can’t base coal operations on that.”
“Learning to operate mines to provide that flexibility is key, and I think it’s challenging, but I agree it’s the direction we are going,” added Adam Anderson, the vice president of sales for St. Louis-based Armstrong Energy.
Glancy said surface mines might be better suited for such flexible production, but other factors, such as transportation, also come into play.
“I’ve worn out more than few whiteboards trying to do that,” said Glancy.
DECLINING COAL GENERATION
The panel also agreed that coal’s share of the US electricity generation mix could fall as low as 27%, as Robert Murray estimated in an earlier presentation.
“From our perspective, it could go that low, absolutely,” said Grant Quasha, the chief commercial officer for Louisville, Kentucky-based Bowie Resource Partners. “But we are focused on the plants we serve [in the western US] that are baseload plants that can’t go away.”
Quasha said that despite low natural gas prices, coal prices in the West can remain competitive due to vast amounts of federal land that make building new natural gas pipelines largely prohibitive.
He said Bowie’s focus on signing long-term contracts and cutting costs have resulted in an average delivered cost of $2.04/MMBtu.
Anderson said he agreed that coal’s share could fall to 27%, but that it was important to remember that gas can be a volatile commodity. He pointed to the increase in gas prices in February 2014 when weather caused the NYMEX Henry Hub futures contract to jump from $4/MMBtu to $6.135/MMBtu.
“I would submit [that] investing in that kind of volatility is a very dangerous proposition, and not investing in [a] foundation like coal is a very unwise investment,” said Armstrong.
