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Coal is the Fuel for a World in Decline

On track to be the world's dominant energy source again
Thursday, June 28, 2012, 10:35 AM
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Executive Summary

  • Coal is priced very attractively on a BTU output basis
  • Developing countries, where energy demand is growing greatest, are much more dependent on the power grid to run their economies
  • Coal is on track to reclaim its postion as the world's top energy source (possibly as early as this year)
  • What are the implications of a global resurgence of coal-usage?

If you have not yet read Part I: The Global Coal Juggernaut Rolls Onward, available free to all readers, please click here to read it first.

As the global economy once again moves through an acute phase of the ongoing financial crisis, it is natural that energy prices should decline. West Texas Intermediate Crude (WTIC) is once again back nearly below $80 a barrel. And coal prices, both thermal and for steelmaking, have also declined. Central Appalachian Coal, rich in thermal content, was mostly steady near $80 per short ton for much of last year. (This translates to about $3.20 per million BTUs).

However, 2012 has seen a pricing decline as the world economy once again slows down on the back of persistent debt problems -- and the persistently elevated price of oil.

One of the pernicious dynamics about coal pricing is that thermal coal is nearly always able to reset at a low enough level to compete against all other forms of BTUs.

As previously mentioned, that has recently not been the case in the United States, where a million BTUs of natural gas is now cheaper to burn than a million BTUs of coal -- especially after coal’s higher regulatory costs are factored into the equation. But if the new and grim reality of oil is that world recession no longer brings oil prices down meaningfully, it is still the case that any global industrial slowdown does indeed bring coal prices low enough to outprice other energy sources. And while rich, thermal coal from Appalachia is currently cheap at around $3.00 per million BTUs, Powder River Basin coal is even cheaper, at an amazingly low $0.52 per million BTUs.

It’s not surprising, therefore, that each time the global economy weakens and then rebounds, its hunger for coal advances more strongly.

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