IEA warns of gloomy outlook for US coal industry


The US coal industry faces a difficult period at home as shale gas reduces the fuel's share in power generation, but its problems are set to worsen as export markets diminish and large swaths of the industry could have to shut, the International Energy Agency warned Tuesday.

US coal consumption will fall by 14% between 2011 and 2017 as power stations burn increasing amounts of cheap shale gas, but the European export outlet that has helped sustain the industry through the early stages of this shift won't last as carbon emissions regulations there tighten, the IEA said.

The result is likely to be mine closures and job losses in some of the poorest U.S. regions, it said.

"If domestic coal demand remains sluggish and international coal prices low, large shares of coal production in the United States will eventually become unprofitable," said the Paris-based IEA, which advises rich industrialized countries on energy policy, in its medium-term coal market outlook.

The US coal industry's woes are the flip side of a six-year boom in natural gas production as companies have used new technologies to unlock vast reserves previously trapped in shale rock formations stretching from Texas to New York.

The resulting fall in natural gas prices has encouraged a shift away from coal in power generation, putting pressure on the world's second-largest coal industry.

Although coal remains the backbone of the power system in the US, natural gas increased its market share by almost six percentage points between 2005 and 2011. Last year, natural gas accounted for 24% of the electricity generated in the country, while coal provided 43% of US electricity generation.

The US coal industry has responded by increasing exports, primarily to Europe where recent low prices for permits to emit carbon dioxide and high prices for natural gas have made coal more attractive.

According to the IEA, US seaborne coal exports increased by 31% in 2011 compared with 2010 to 97 million metric tons, the highest level in the last two decades.

But growth in European demand for coal is expected to be sluggish over the next five years as regulations governing the emissions of carbon dioxide from power stations get more stringent and renewable energy production grows.

The trend is already apparent. German utility E. ON AG said Monday it had ceased commercial operations at a coal-fired power station in Kent in the southeastern UK in response to European Union legislation limiting carbon emissions.

"2013 will be a good year for US coal exports, but then it will become more difficult for the coal to come to Europe," said Laszlo Varro, head of the gas, coal and power division at the IEA.

That is bad news for the US coal industry. Estimates already peg production cuts at around 60 million tons this year, or around 6% of the country's coal production in 2011, the IEA said. By contrast, supply of natural gas is estimated to have increased by around a quarter between 2006 and 2011.

"Given sustained weak coal demand over the outlook period, parts of the coal industry in the United States will have to be restructured and consolidated in the coming years," the report said.

Closing 60 million tons a year of mining capacity in the second-largest US mining region, Appalachia, might result in the loss of 9,000 to 15,000 direct mining jobs, the IEA said. The majority of mine consolidation would likely take place in West Virginia and Kentucky, among the 10 poorest states by gross domestic product per capita, it said.

However, the IEA said it was likely many employees of the mining industry would be able to find new jobs. "Given that the US economy is recovering and the shale gas industry is looking for a lot of people with technical qualifications you will probably see former coal miners finding employment in shale gas," said Mr. Varro.

Dow Jones Newswires

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