Murray Energy Corp. and all other US coal producers have been forced to shut mines and fire thousands of workers in 2012 as they cut their output by tens of millions of tons every quarter, in the face of weaker demand and ever-lower prices. Coal used in the US for power stations which are increasingly moving to burning natural gas has reduced US total coal demand by more than 20% in one year. If this trend continues, and Obama further tightens the screw on coal, India will replace the US as the world's second-biggest coal burner, by 2015 or sooner.
Murray Energy's latest round of job cuts were explained this way: “The decision to lay people off was difficult and complicated. First the Obama Administration’s War on Coal has already destroyed coal markets and resulted in the need for some layoffs,” and “Second, the layoffs were more severe due to the anticipation of further damage to coal markets caused by the Obama Administration’s disastrous War on Coal”, wrote Gary Broadbent, Murray Energy spokesman, in a corporate e-mail, 9 November.
CEO Robert Murray went further: he read a prayer to workers asking God’s forgiveness for “decisions that we are now forced to make to preserve the very existence of any of the enterprises that you have helped us build”. Coal prices for coal from Murray Energy's Montana stripmines were around $10.30 per metric ton in early November, pricing this coal energy at $2.06 per barrel of oil equivalent.
By an almost supreme irony, European coal demand, more precisely European import demand for coal is growing, like its price - in major part due to Europe's clean energy/low carbon energy transition policy and its member state energy programmes. Also on 9 November, coal market watchers such as IHS McCloskey reported that thermal coal for 2013 delivered to Amsterdam, Rotterdam and Antwerp had reached a new high price of $95.50 a metric ton, reversing price losses earlier in 2012.
Another irony is that the world's No 1 and No 3 coal consumers - China and India - are like the No 2 USA becoming coal-averse, helped by the tendency for coal export prices, in some markets, continuing to hold up notably because of transport and infrastructure costs - but alternatives exist. In China and India, the continuing and massive tide of urbanization generates vast quantities of municipal waste. Power plants fueled by municipal waste, wood chips and straw are targeted for reducing consumption of coal to generate electricity. China, the world’s biggest coal user, offers increasing aids and incentives to build clean-energy plants, to help meet its now decelerating growth of power demand with lower environmental damage, local-produced fuels. Forecasts for urban growth in China show its cities may count 1 billion people by 2025, and India's cities may be home to more than 500 million people by 2025 - for a combined urban population of 5 times the total population of the USA today.
India, which like China obtains more than 65% of its electricity from coal, today, plans to add 29.8 GW (29 800 MW) of renewable-energy generation capacity by 2017, of which up to 2.7 GW could be based on municipal waste and bio-energy, according to government agencies. In both countries, as in the US, the coal-averse future threatens a price war among international coal exporters, with a major knock-on to international pipeline gas and LNG export suppliers. Russia's Gazprom, which supplies nearly one-third of Europe’s gas, agreed in November to revise down gas prices for German, Italian, Polish and other power producers - because it fears losing market share due to cheaper coal exported by the US, as well as the surge in global LNG supplies that will continue every year, to 2020 and beyond.
Coal's last laugh will however come, later. Both coal seam fracking, and controlled ignition of deep coal reserves leave underground the worst parts of coal -- the mercury, arsenic, and other toxic metals including lead. It also allows for highly simple capture of greenhouse gases, which can be piped back into the seam and stored there or sold to oil and gas producers who inject it into wells to enhance recovery rates. Development of in situ coal gasification is proceeding faster in places where natural gas is expensive and large untapped coal seams are deep, including Canada, South Africa, New Zealand, China, Pakistan and Uzbekistan. Neither of these preconditions particularly apply to US coal, at present, but the gas price range is sensitive.
Hydraulic fracturing or fracking depressed US gas prices to a 15-year low of less than $2 a million BTU in April 2012, well below the $6 that would be needed to rationalize deep coal gasification, according to industry analysts and technology researchers at the USA's Lawrence Livermore National Laboratory in California. However, this price level of $6 is about 60% below current prices charged by Gazprom and by Qatar for their gas export supplies. The margin is therefore large: an increase in US gas prices, and a fall in world prices for traded gas will create a huge market opening for deep coal-based natural gas production and supply.
Potential quantities of this gas, from deep coal resources are "almost unlimited", probably at least equivalent to global stranded gas and shale gas resources found in the 7 years 2005-2011. These "new gas" resource finds are equal to about 150 years of present global annual gas consumption.
The definition of "deep coal" is highly flexible, with some regions of stripmining and shallow mine production, such as most US western States, defining this as coal located at 300 - 1000 metres below surface. Other definitions set "deep coal" as seams and beds, sometimes huge (more than 100 sq kms) located at 2000 metres or deeper. The resource size can be appreciated from studies made by the Montana Bureau of Mines, only concerning the eastern Montana part of the large regional, Cretacious era coal zone covering 4 States, located at up to 1000 metres below surface: these estimates are of at least 125 billions tons of coal. Studies concerning the deep coal resources of the European North Sea basin are of at least 350 billion tons. World current total coal conumption, ranking coal energy at almost equal to oil energy and well ahead of current natural gas energy supply, is about 6 bn tons per year.
Currently, the world's deep coal resources are impossible to develop, and present-day economic coal mining, notably due to competition from gas and renewables, and due to labour and environmental regulations, is increasingly stripmine and surface mining-oriented. Very few coal mines, today, operate at lower than 500 metres below surface. Deep coal is therefore a "new resource", able to be accessed for its energy content, without the pollutants, by fracking and by in situ gasification. The potential for this new energy development are of course dependent on global energy demand and price trends, which are dragged lower by global economic slowdown and very rapid and radical growth of shale gas, stranded gas and renewable energy supplies, forcing down producer and prime user prices for energy. By the 2020-2025 horizon, however, in situ deep coal energy producton is likely to grow, perhaps rapidly.
By Andrew McKillop
Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights
Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012
Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.
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