Coal economics

United States

Cost

Coal is often thought to cost less per kilowatt hour than other energy sources, due in part to federal coal subsidies and the external costs of coal borne by the public. In June 2010, the U.S. Energy Information Administration (EIA) said $557 billion was spent to subsidize fossil fuels globally in 2008, compared to $43 billion in support of renewable energy. A Feb. 2011 report, "Mining Coal, Mounting Costs: the Life Cycle Consequences of Coal," found that accounting for the full costs of coal would double or triple its price. The study, released in the Annals of the New York Academy of Sciences, tallied the economic, health and environmental costs associated with each stage in the life cycle of coal and estimated those costs to be between $175 billion and $500 billion dollars annually.

A 2012 study by the group Groundtruth Trekking, "An analysis of generation type and electricity prices in the United States (2011)," looked at 20 years of US power generation and price data and found there is very little correlation between coal use and the cost of electricity, and that coal is the most expensive energy when the external costs of coal are factored in.

Fluctuating value of coal

In June 2011, Goldman Sachs announced coal stocks look poised to rise 35% over the next six months, as U.S. bituminous thermal-coal producers increased exports to Asia and Europe, leading the firm to raise investment-recommendation rating for coal-sector stocks to "attractive." In conjunction with the sector upgrade, Goldman Sachs raised its ratings on Patriot Coal, Peabody Energy, and Consol Energy.

In August 2011, Bloomberg reported that while coal prices had surged to a record $330 a metric ton in the second quarter 2011, coal prices had since slipped 4.5 percent to $315 a ton in the third quarter 2011, according to data compiled by Bloomberg. Citigroup estimates that the price of metallurgical or coking coal for steel will average about $275 a ton in 2012 and $248 in 2013. The article noted that coal-mining takeovers since 2010 have resulted in the buyers losing value: "Of the seven deals valued at $1 billion or more, acquiring companies have declined 18 percent on average, data compiled by Bloomberg show. Those buyers agreed to pay an average premium of 33 percent, versus a 17 percent premium for all prior industry deals." The article concludes: "Citigroup Inc. and Stewart Capital say that some [coal companies] may be paying too much [for coal-mining takeovers] in the face of a global economic slowdown and a peak in prices of metallurgical, or steelmaking, coal."

Global

CAP report on factors that may influence coal costs

In July 2011, the Center for American Progress predicted the US and global economics of coal would change due to five factors:

1. While coal becomes more volatile, the price of renewable energy is falling, while natural gas prices are steady.
2. The delivered price of coal increased three times faster than inflation over the past five years - Over the past five years, U.S. inflation has increased around 15%. During that same period, the delivered price of coal to utilities has gone up 54%, according to the EIA. In the last decade, the delivered cost of coal has increased 96%, with U.S. inflation around 30% over that time period. Since the beginning of 2011, the delivered price of coal has increased 3.1 percent.
3. States dependent on coal had the highest electricity price increase in the past five years - The retail price of electricity in the US increased 22% over the past five years from 8.1¢ in 2005 to 9.9¢ in 2010. But the two most coal-dependent regions – East South Central (TN, KY, MS, AL) and East North Central (MI, OH, IN, IL, WI) – saw their rates increase 34% and 32% respectively.
4. U.S. coal mining productivity has declined 20% since 2000, perhaps a sign of peak coal - While improved technologies boosted coal mining operations from the late 70’s until the year 2000, since then productivity has declined substantially. The EIA figures show decreasing productivity – with the country’s largest coal reserve, the Powder River Basin, declining by 7.2% between 2008 and 2009.
5. Rising international demand and recognition of the environmental costs of coal will drive coal prices upward - Between 2009 and 2010, exports to China increased from 386,950 short tons to 4,071,837 short tons. With exports to China increasing, prices will continue to rise. Five Chinese power providers are facing financial troubles because of price increases.

CAP concludes that while none of these indicators prove can project where prices will go, they will most likely continue to drive up the price of coal, making it less attractive for consumers.

Ownership and regulations

The group Carbon Tracker estimates that coal reserves held by companies listed on the London Stock Exchange is equivalent to 44.56 gigatonnes of CO2 owned by 16 companies; of that, around half of the coal owned by these UK-listed companies is exported to China, Russia, India and South Africa. Most of the reserves held (one-third) are located in Australia. The report therefore argues that:

"The traditional focus of global climate negotiations has been on the carbon emissions emitted by different countries within their own borders. But the globalisation of capital markets means that investors can hold a coal company stock on the London market which has coal reserves in, for example, Australia, which is then sold in a third country, for example, China. As owners of these stocks, investors are in part responsible for these emissions, and also exposed to efforts to reduce them. It also means that the scope of national responsibility for carbon goes beyond traditional national boundaries and needs to include the ‘financial carbon’ of stock markets."

Resources

Related GEM.wiki articles

• Emergency Economic Stabilization Act of 2008 and coal
• Financial Risks of Coal Energy Investment