Coal Supply Overview  December 16, 2004
<ul><li>Supply Perspective </li></ul><ul><li>History and Forecast </li></ul><ul><li>International Market Factors </li></ul...
US COAL PRODUCTION HISTORY <ul><li>Fundamental Shift </li></ul><ul><ul><li>Bituminous coal decline </li></ul></ul><ul><ul>...
US COAL FORECAST DEMAND <ul><li>Near-Term </li></ul><ul><ul><li>Decline in Central Appalachian production </li></ul></ul><...
US EASTERN COAL SUPPLY <ul><li>Near-Term </li></ul><ul><ul><li>Central Appalachian production decline </li></ul></ul><ul><...
US WESTERN COAL SUPPLY <ul><li>Near-Term </li></ul><ul><ul><li>Sub-bituminous (SPRB) penetration into gulf lignite and eas...
US COAL SUPPLY MARKET DRIVERS <ul><li>Mine Costs </li></ul><ul><ul><li>Rising in the east dramatically, productivity dropp...
RE-ORDERED EASTERN COAL PRICES <ul><li>Punctuated Equilibrium - East </li></ul><ul><ul><li>Pre-2000 </li></ul></ul><ul><ul...
RE-ORDERED WESTERN COAL PRICES <ul><li>Punctuated Equilibrium - West </li></ul><ul><ul><li>Pre-2000 </li></ul></ul><ul><ul...
EASTERN COAL PRODUCTIVE CAPACITY <ul><li>Sharing the Pain </li></ul><ul><ul><li>All eastern supply regions will need re-de...
EASTERN COAL 2004 PRODUCTIVE CAPACITY – COUNTY VIEW
EASTERN COAL 2009 RESERVE RECDUCTION – COUNTY VIEW Assuming  no new  development and 2004 production levels
EASTERN COAL 2014 RESERVE REDUCTION – COUNTY VIEW Assuming  no new  development and 2004 production levels
COAL PRICE FORECAST <ul><li>East </li></ul><ul><ul><ul><li>High for 3 years </li></ul></ul></ul><ul><ul><ul><li>Decline in...
<ul><li>Supply Perspective </li></ul><ul><li>History and Forecast </li></ul><ul><li>International Market Factors </li></ul...
WORLD CONSUMPTION OF ENERGY <ul><li>US Consumption is Flat </li></ul><ul><ul><li>One quarter of world consumption </li></u...
WORLD ENERGY CONSUMPTION BY FUEL SOURCE (2003) <ul><li>Asia </li></ul><ul><ul><li>Coal  dramatically  important </li></ul>...
WORLD COAL RESERVES (PROVED, 2003) <ul><li>US is King </li></ul><ul><ul><li>But feeds domestic consumption (mostly) </li><...
WORLD COAL PRICES, HISTORICAL <ul><li>Abundant, Predictable </li></ul><ul><ul><li>Prices fell through the 1990s </li></ul>...
EFFECTS OF WORLD COAL MARKET FACTORS ON US COAL SUPPLY <ul><li>High World Coal Steam Prices </li></ul><ul><ul><li>Increase...
<ul><li>Supply Perspective </li></ul><ul><li>History and Forecast </li></ul><ul><li>International Market Factors </li></ul...
US COAL TRANSPORTATION FACTS <ul><li>By Mode </li></ul><ul><ul><li>600 million tons – rail </li></ul></ul><ul><ul><li>100 ...
US COAL TRANSPORTATION ISSUES <ul><li>West </li></ul><ul><ul><li>Joint line capacity increase </li></ul></ul><ul><ul><ul><...
SUMMARY <ul><li>Coal Supply </li></ul><ul><ul><li>In the future </li></ul></ul><ul><ul><ul><li>More western coal at the ex...
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Transcript of "Coal supplyoverview"

  1. 1. Coal Supply Overview December 16, 2004
  2. 2. <ul><li>Supply Perspective </li></ul><ul><li>History and Forecast </li></ul><ul><li>International Market Factors </li></ul><ul><li>Coal Transportation </li></ul>AGENDA
  3. 3. US COAL PRODUCTION HISTORY <ul><li>Fundamental Shift </li></ul><ul><ul><li>Bituminous coal decline </li></ul></ul><ul><ul><li>Sub-bituminous growth fueled by SPRB </li></ul></ul><ul><ul><li>Now nearly 50/50 </li></ul></ul><ul><li>Recent Small Decline </li></ul><ul><ul><li>Temporary </li></ul></ul><ul><ul><li>2004 on pace for 1.1 billion tons </li></ul></ul>
  4. 4. US COAL FORECAST DEMAND <ul><li>Near-Term </li></ul><ul><ul><li>Decline in Central Appalachian production </li></ul></ul><ul><ul><li>Growth captured by PRB and Northern Appalachia </li></ul></ul><ul><li>Long-Term </li></ul><ul><ul><li>Bigger PRB growth </li></ul></ul><ul><ul><ul><li>Mercury is issue, though </li></ul></ul></ul><ul><ul><li>Stage set for Appalachian rebound </li></ul></ul><ul><ul><ul><li>Stimulated by Hg control </li></ul></ul></ul><ul><ul><ul><li>If re-capitalization occurs </li></ul></ul></ul>
  5. 5. US EASTERN COAL SUPPLY <ul><li>Near-Term </li></ul><ul><ul><li>Central Appalachian production decline </li></ul></ul><ul><ul><li>Northern Appalachia production increase </li></ul></ul><ul><ul><ul><li>Re-capitalization required </li></ul></ul></ul><ul><li>Long-Term </li></ul><ul><ul><li>Continued Northern Appalachia market penetration </li></ul></ul><ul><ul><ul><li>Re-capitalization required </li></ul></ul></ul><ul><ul><li>Central Appalachia rebound </li></ul></ul><ul><ul><ul><li>Re-capitalization required </li></ul></ul></ul>
  6. 6. US WESTERN COAL SUPPLY <ul><li>Near-Term </li></ul><ul><ul><li>Sub-bituminous (SPRB) penetration into gulf lignite and eastern markets </li></ul></ul><ul><ul><li>Sub-bituminous penetration into southwest markets (limited) </li></ul></ul><ul><li>Long-Term </li></ul><ul><ul><li>Sub-bituminous growth expansion into eastern markets </li></ul></ul><ul><ul><ul><li>Eastern coal production near peak </li></ul></ul></ul><ul><ul><li>Bituminous western coal pickup </li></ul></ul>
  7. 7. US COAL SUPPLY MARKET DRIVERS <ul><li>Mine Costs </li></ul><ul><ul><li>Rising in the east dramatically, productivity dropping </li></ul></ul><ul><ul><li>Rising a little in the west, productivity steady </li></ul></ul><ul><li>Environmental Regulation </li></ul><ul><ul><li>Uncertainty creates an environmental “premium” that must be captured by someone </li></ul></ul><ul><ul><ul><li>Delays new plant construction (perceived risk) </li></ul></ul></ul><ul><ul><ul><li>Volatilizes pollutant commodity prices </li></ul></ul></ul><ul><ul><ul><li>New regulation not yet captured in modeling, but expected </li></ul></ul></ul><ul><li>Transportation </li></ul><ul><ul><li>No limits </li></ul></ul><ul><ul><li>Cost of required increased capacity not in PRB pricing yet </li></ul></ul><ul><li>Market Pricing </li></ul><ul><ul><li>Crude and natural gas sympathy vs mine costs </li></ul></ul><ul><ul><li>Spot vs contract </li></ul></ul>
  8. 8. RE-ORDERED EASTERN COAL PRICES <ul><li>Punctuated Equilibrium - East </li></ul><ul><ul><li>Pre-2000 </li></ul></ul><ul><ul><ul><li>Unhealthy fitness landscape </li></ul></ul></ul><ul><ul><ul><li>Sales at below cost </li></ul></ul></ul><ul><ul><ul><li>Rationalization, etc. </li></ul></ul></ul><ul><ul><li>2000/2001 </li></ul></ul><ul><ul><ul><li>The “Perfect Storm” </li></ul></ul></ul><ul><ul><li>Post 2001 </li></ul></ul><ul><ul><ul><li>Healthier fitness landscape </li></ul></ul></ul><ul><ul><ul><li>Sales at full cost plus rate of return </li></ul></ul></ul><ul><ul><ul><li>No actual floor set…yet </li></ul></ul></ul>
  9. 9. RE-ORDERED WESTERN COAL PRICES <ul><li>Punctuated Equilibrium - West </li></ul><ul><ul><li>Pre-2000 </li></ul></ul><ul><ul><ul><li>Unhealthy fitness landscape </li></ul></ul></ul><ul><ul><ul><li>Sales at cost </li></ul></ul></ul><ul><ul><ul><li>Rationalization, etc. </li></ul></ul></ul><ul><ul><li>2000/2001 </li></ul></ul><ul><ul><ul><li>The “Perfect Storm” </li></ul></ul></ul><ul><ul><li>Post 2001 </li></ul></ul><ul><ul><ul><li>Healthier fitness landscape </li></ul></ul></ul><ul><ul><ul><li>Sales at full cost plus rate of return </li></ul></ul></ul><ul><ul><ul><li>Floor set </li></ul></ul></ul>
  10. 10. EASTERN COAL PRODUCTIVE CAPACITY <ul><li>Sharing the Pain </li></ul><ul><ul><li>All eastern supply regions will need re-development capital </li></ul></ul><ul><ul><ul><li>Central Appalachia hit hardest </li></ul></ul></ul><ul><li>Environmental Issues </li></ul><ul><ul><li>Not just boiler side </li></ul></ul><ul><ul><ul><li>Valley fill issues, permitting problems </li></ul></ul></ul><ul><li>Timing </li></ul><ul><ul><li>Beginning by 2009, accelerating by mid-next-decade </li></ul></ul><ul><ul><li>Early attention required </li></ul></ul>
  11. 11. EASTERN COAL 2004 PRODUCTIVE CAPACITY – COUNTY VIEW
  12. 12. EASTERN COAL 2009 RESERVE RECDUCTION – COUNTY VIEW Assuming no new development and 2004 production levels
  13. 13. EASTERN COAL 2014 RESERVE REDUCTION – COUNTY VIEW Assuming no new development and 2004 production levels
  14. 14. COAL PRICE FORECAST <ul><li>East </li></ul><ul><ul><ul><li>High for 3 years </li></ul></ul></ul><ul><ul><ul><li>Decline in gas-abundant world </li></ul></ul></ul><ul><li>West </li></ul><ul><ul><ul><li>Steady growth </li></ul></ul></ul><ul><ul><ul><ul><li>Strip ratio effect </li></ul></ul></ul></ul><ul><li>Never below full cost </li></ul><ul><li>Sensitivity </li></ul><ul><ul><ul><li>Environmental regulation </li></ul></ul></ul><ul><ul><ul><li>Mine costs </li></ul></ul></ul><ul><ul><ul><li>Gas abundance </li></ul></ul></ul><ul><ul><ul><ul><li>LNG imports </li></ul></ul></ul></ul>
  15. 15. <ul><li>Supply Perspective </li></ul><ul><li>History and Forecast </li></ul><ul><li>International Market Factors </li></ul><ul><li>Coal Transportation </li></ul>AGENDA
  16. 16. WORLD CONSUMPTION OF ENERGY <ul><li>US Consumption is Flat </li></ul><ul><ul><li>One quarter of world consumption </li></ul></ul><ul><li>Asian Consumption on the Rise </li></ul><ul><ul><li>China growing (1/3 of Asian consumption) but still half that of US consumption </li></ul></ul><ul><ul><li>Japan flat (1/6) </li></ul></ul><ul><ul><li>India/South Korea growing (1/5) </li></ul></ul>
  17. 17. WORLD ENERGY CONSUMPTION BY FUEL SOURCE (2003) <ul><li>Asia </li></ul><ul><ul><li>Coal dramatically important </li></ul></ul><ul><ul><li>China coal consumption nearly third of world total </li></ul></ul><ul><ul><li>China coal consumption exceeds US consumption </li></ul></ul><ul><li>US/Europe </li></ul><ul><ul><li>Diversified fuel use </li></ul></ul><ul><ul><li>Europe coal consumption increasing (for now) </li></ul></ul><ul><ul><li>US coal consumption increasing </li></ul></ul>
  18. 18. WORLD COAL RESERVES (PROVED, 2003) <ul><li>US is King </li></ul><ul><ul><li>But feeds domestic consumption (mostly) </li></ul></ul><ul><ul><li>200+ years of reserves at current domestic consumption levels </li></ul></ul><ul><li>China Must Import </li></ul><ul><ul><li>Huge reserves, but poor technology and infrastructure </li></ul></ul><ul><li>Other Players </li></ul><ul><ul><li>Australia, South Africa long term players </li></ul></ul><ul><ul><li>Europe largely uneconomic and disinterested </li></ul></ul><ul><ul><li>Former eastern block a wild card </li></ul></ul>
  19. 19. WORLD COAL PRICES, HISTORICAL <ul><li>Abundant, Predictable </li></ul><ul><ul><li>Prices fell through the 1990s </li></ul></ul><ul><li>Key Points </li></ul><ul><ul><li>Mixture of coal types masks price variation </li></ul></ul><ul><ul><li>US emission regulation price effects - minor </li></ul></ul>
  20. 20. EFFECTS OF WORLD COAL MARKET FACTORS ON US COAL SUPPLY <ul><li>High World Coal Steam Prices </li></ul><ul><ul><li>Increased exports </li></ul></ul><ul><ul><ul><li>All Appalachian regions </li></ul></ul></ul><ul><ul><li>Decreased eastern coal for utilities </li></ul></ul><ul><ul><li>Accentuate already critical supply/demand balance in eastern US </li></ul></ul><ul><li>High World Coal Met Prices </li></ul><ul><ul><li>As above, plus… </li></ul></ul><ul><ul><ul><li>Marginal met coals move from US steam markets to domestic and int’l met markets </li></ul></ul></ul><ul><li>China </li></ul><ul><ul><li>From net exporter of coal to net importer in one year </li></ul></ul><ul><ul><ul><li>Steel-making driving coal demand </li></ul></ul></ul><ul><ul><li>China demand could limit US import sources </li></ul></ul><ul><ul><li>Kyoto Treaty limits inconsequential to China </li></ul></ul>
  21. 21. <ul><li>Supply Perspective </li></ul><ul><li>History and Forecast </li></ul><ul><li>International Market Factors </li></ul><ul><li>Coal Transportation </li></ul>AGENDA
  22. 22. US COAL TRANSPORTATION FACTS <ul><li>By Mode </li></ul><ul><ul><li>600 million tons – rail </li></ul></ul><ul><ul><li>100 million tons – truck </li></ul></ul><ul><ul><li>80 million tons – belt </li></ul></ul><ul><ul><li>80 million tons – rail to barge </li></ul></ul><ul><ul><li>50 million tons – barge </li></ul></ul><ul><ul><li>45 million tons – truck to barge </li></ul></ul><ul><ul><li>+/- 100 million tons – mixed modes </li></ul></ul><ul><li>By Carrier </li></ul><ul><ul><li>200 million tons originated and 150 million tons terminated by UP </li></ul></ul><ul><ul><li>200 million tons originated and 125 million tons terminated by BNSF </li></ul></ul><ul><ul><li>100 million tons originated and terminated by CSX/NS </li></ul></ul><ul><ul><li>25 million tons terminated by Canadian railroads </li></ul></ul><ul><ul><li>20 million tons terminated by KCS </li></ul></ul><ul><li>Costs by Mode </li></ul><ul><ul><li>Rail </li></ul></ul><ul><ul><ul><li>West: 10 – 25 mills per ton-mile </li></ul></ul></ul><ul><ul><ul><li>East: 15 – 45 mills per ton-mile </li></ul></ul></ul><ul><ul><li>Truck </li></ul></ul><ul><ul><ul><li>5 – 20 cents per ton-mile </li></ul></ul></ul><ul><ul><li>Barge </li></ul></ul><ul><ul><ul><li>Competitive with rail and better </li></ul></ul></ul>
  23. 23. US COAL TRANSPORTATION ISSUES <ul><li>West </li></ul><ul><ul><li>Joint line capacity increase </li></ul></ul><ul><ul><ul><li>PRB growth impossible without this, except </li></ul></ul></ul><ul><ul><ul><ul><li>Re-routing BNSF shipments north </li></ul></ul></ul></ul><ul><ul><ul><ul><li>DM&E, TRR impacts? </li></ul></ul></ul></ul><ul><ul><li>PRB mine load-out improvement </li></ul></ul><ul><ul><ul><li>Follow-on train issues </li></ul></ul></ul><ul><ul><li>Cost sharing? </li></ul></ul><ul><li>East </li></ul><ul><ul><li>Short-Term </li></ul></ul><ul><ul><ul><li>CSX: equipment shortage? </li></ul></ul></ul><ul><li>International Effects </li></ul><ul><ul><li>Return of exports </li></ul></ul><ul><li>Inter-fuel Competition </li></ul><ul><ul><li>More coal, less gas </li></ul></ul>
  24. 24. SUMMARY <ul><li>Coal Supply </li></ul><ul><ul><li>In the future </li></ul></ul><ul><ul><ul><li>More western coal at the expense of eastern coal </li></ul></ul></ul><ul><ul><ul><li>More Mon River and Illinois Basin coal at the expense of Central Appalachian coal </li></ul></ul></ul><ul><ul><ul><li>Gas prices set coal price cap; costs set floor </li></ul></ul></ul><ul><ul><ul><li>Major re-investment need in the east </li></ul></ul></ul><ul><ul><ul><li>Steadily increasing costs in the west </li></ul></ul></ul><ul><li>International Issues </li></ul><ul><ul><li>Chinese demand driving world redistribution of coal and (even) US price impacts </li></ul></ul><ul><ul><li>Metallurgical coal also matters </li></ul></ul><ul><li>Transportation Issues </li></ul><ul><ul><li>Joint line capacity increase is necessary </li></ul></ul><ul><ul><li>Equipment shortage in the east </li></ul></ul><ul><li>Wild Card </li></ul><ul><ul><li>Environmental regulation </li></ul></ul><ul><ul><ul><li>Inter- and intra-fuel redistribution likely in different scenarios </li></ul></ul></ul>
  25. 25. Thank you.
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