Processing Magazine

US coal production at risk of losing battle with shale gas

January 9, 2013

According to predictions made by the International Energy Agency (IEA), coal consumption in the United States is going to fall by an estimated 14 percent between 2011 and 2017, as more power stations will be operating using cheap shale gas.

The boom in shale gas production does not spell a bright future for the U.S. coal industry, which has been struggling with rising costs and carbon footprint criticism. The fact that large resources of shale gas have been brought into use means that coal is going to see its share in power generation decline even further. On top of that, export markets are also likely to contract, which might even cause business in the industry, including coal mines in some of the poorer U.S. regions, to close down completely, the IEA has warned.

If domestic demand and international prices remain at current low levels, the IEA forecasts that large portions of the U.S. coal industry will cease to make profits. This puts the second-largest coal industry in the world in an extremely difficult situation. Even though coal still accounts for the biggest market share in the power industry, its position might soon be contested, as the market share of natural gas has risen by six percentage points between 2005 and 2011 and is set to increase further. In 2011, natural gas provided a quarter of the electricity generated in the United States, while coal was involved in 43 percent of U.S. electricity generation. It is estimated that coal production this year will come in at about 6 percent less than last year's levels.

RELATED: US coal use fell 5 percent in 2011

In an attempt to deal with the challenge, the U.S. coal industry has focused on international markets. Exports have picked up, especially to Europe, where demand for coal has risen due to high prices for natural gas and low prices for carbon dioxide emission permits, reported Hydrocarbon Processing. Figures from the IEA revealed that coal exports from the U.S. rose by nearly a third in 2011, compared to levels from the previous year, reaching 97 million metric tons, an unprecedented amount over the past two decades.

Still, U.S. coal producers should not bet too much on European markets, as experts predict a slow growth in demand over the next five years. The EU is looking into ways to tighten regulation on emissions of carbon dioxide from power stations and boost the usage of renewable energy sources. A number of European companies are already taking measures to adapt early to the changing situation. One of those is German E.ON, which recently announced it was putting its operations at a coal-fired power station in Kent, in the UK, in compliance to the new EU legislation on carbon emissions.

According to Laszlo Varro, head of the gas, coal and power division at the IEA, 2013 might still be good in terms of export for the U.S. coal industry but the situation is likely to become more challenging over the following years.