The value of US coal exports is on the rise

The recent Atomic Insights post discussing the cost of FPL’s proposed new nuclear plants in South Florida generated quite a discussion thread that provides a lot of food for thought. I noticed an article in the New York Times published on March 19, 2008 titled An Export in Solid Supply (registration required – sorry) that provides information about another aspect of the rapidly increasing projected costs for new nuclear plants. Though the US is famously the world’s most coal endowed nation, and though our coal prices have lagged those in many other markets, the pricing situation is changing quite rapidly. In a development that should surprise no one, American businessmen have recognized that they can obtain better prices for their coal in markets in European markets than they can in the US.

When a competitive businessman sees a price differential of sufficient magnitude that looks like it has some lasting legs, he will take action to allow him to take advantage of the higher prices. In the past year, US coal exports have surged, and for the first time in several decades, US coal miners are providing a significant portion of the world coal export supply.

Not surprisingly, a move to export coal has tightened supplies in the US enough to raise domestic prices as well.

Nonetheless, spot prices for two benchmark American grades of coal, from central Appalachia and the Powder River Basin of Wyoming, have been rising, with occasional dips, since last spring.

They eased in recent days but are still up by 93 percent and 64 percent (emphasis added), respectively, in the last year, according to figures from Doyle Trading Consultants and Evolution Markets.

How high prices will go, and how quickly the increases will be passed along to electricity customers, remains to be seen.

American utility companies buy almost all their coal on long-term contracts, locking in prices for several years.

But as those contracts come up for renewal, price increases are likely, analysts said.

That price increase came with a relatively small increase in the amount of coal that is being exported, but the exports are scheduled to grow rather strongly for several years as companies and government agencies (port authorities will play a big role) build out the transportation infrastructure needed to support the growth.

The United States will export 7 or 8 percent of its coal production this year, up from about 5 percent last year, industry leaders predicted in interviews. Because of higher prices, the value of coal exports should double, to $3.75 billion.

United States exports of coal grew from 49 million tons in 2006 to about nearly 59 million tons in 2007, according to coal industry statistics, while domestic production increased by 1 percent. Coal executives say they expect exports to reach 80 million tons this year, and with railroad and port improvements, to rise to as much as 120 million tons in the next few years.

It appears that one of the reasons that the prices for nuclear power plants is increasing is because utilities are not seeing much of a choice available if they want to continue meeting their service obligations. Natural gas prices are much higher than expected five years ago, coal prices are jumping, opposition to coal projects from environmental considerations is strengthening, and there are no breakthroughs in the dispersed and intermittent alternative power sources like wind and solar that would allow them to provide reliable, on-demand power. In other words, nuclear plant suppliers probably feel like they are in a position of strength in price negotiations – under current market conditions, it would be hard to disagree.

Of course, if the vendors are too aggressive about raising their prices, the Second Atomic Age may never come. For some suppliers, that is not a problem – they have no preference for selling nuclear components compared to selling coal, oil, natural gas, wind or solar components. What they do not understand is that they might sell nothing, because there will not be a growing economy or a need for new electrical power plants. The lessons of the 1970s need some serious review in the utility and vendor boardrooms.