US demand for electricity has been steadily rising by around 2%
per annum in recent years, which in combination with historical
highs for both gas and oil prices in 2005, has aided an upturn in
the fortunes of the coal industry. Though the coal spot market in
2005 has not been as robust as it has in previous years, the
contract market has been generally well supplied with relatively low
prices, coal remaining the US' largest and cheapest source of
energy.
Despite its lower price, PRB has a lower heat rate and lower
availability because demand outpaces production.
There are however, several interlinked issues that have the
possibility to reverse or halt the recent upward trend, including
the transition to Powder River Basin (PRB) coal, transportation
problems and changes to environmental law.
The coal industry is dealing with unprecedented demand for PRB
coal. In 2004 125-mil tons of PRB coal were delivered to the east,
compared to only 6-mil back in the 1970s.
Switching to PRB coal
brings forth a plethora of issues for utilities. As a result of the
1970 Clean Air act, converting to PRB means utilities have to modify
their compliance control technologies accordingly. Despite its lower
price, PRB has a lower heat rate and lower availability because
demand outpaces production. Other PRB issues include spontaneous
combustion, dustiness, coal mill puffs, component erosion, low mill
outlet temperatures and low heating value.
As demand for PRB grows to make up for shortfalls in Central
Appalachia and elsewhere, the US rail network will need to
expand and adapt
accordingly and will need to be granted the time to do this.
Besides the need for expansion, ongoing
rail problems have
hampered supplies from Wyoming's Power River Basin throughout the
year. In April two derailments caused by bad weather conditions have
led to repairs that will not be finished until late November.
Ratings company Standard & Poor's said Aug 30 that restricted
coal deliveries have been a key factor behind the recent rise in the
price of PRB coal on the spot market to $8-$9/ton in July, compared
with about $5/ton in summer 2004.
The railroads' use of open tariffs and short-term contracts has
caused great concern amongst coal shippers who see the railroads as
effectively operating a monopoly. Members of the Western Coal
Traffic League urged Congress in July to pass both the League
Railroad Competition Act, H.R. 2047, and the Railroad Competition
Improvement and Reauthorization Act. They see the passing of these
bills as enabling them to break free from their current
'captive' status.
As environmental issues become ever more prominent in the US, the
coal industry is increasingly being held to account. Michigan
recently became the 15th state to challenge the Environmental
Protection Agency's
Clean Air Mercury Rule.
With coal-fired electric generating units being the largest single
source of anthropogenic mercury emissions in Michigan, the state
feels, as do many others, that the mercury rule does not go far
enough.
States such as Kentucky and West Virginia have recently
undertaken 'enforcement blitzes' where pollution is concerned.
Black water spills and
slurry line breakages have resulted in citations against various
coal companies.
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