COAL COSTS RISING

Rising coal costs will be felt in electric bills; Mining expenses and foreign demand will bring higher prices to electric bills
Mark Jaffe, )ctober 25, 2010 (Denver Post)

"When it comes to making electricity, nothing is cheaper than coal — but with growing foreign demand, rising mining costs and declining East Coast reserves, not even coal is going to be as cheap…[and] those prices will find their way into [Colorado] electric bills…Colorado has mandated that 30 percent of electricity from regulated utilities come from renewable energy sources by 2020, and there is a plan to replace three aging Xcel Energy coal plants with natural gas…Still, coal will be a major source of electricity in the state for decades to come…Since last October, the price for a one- month contract for Wyoming's Powder River Basin coal, a main Colorado supplier, has risen 67 percent to $13.80 a ton…[When] that coal began to be shipped east…the price ticked up…[M]ore than 1.6 million customers in Colorado…depend on coal from the Powder River Basin…

"The price impact is dampened by long- term contracts and hedging…[but these] price pressures don't take into account the impact of possible legislation to curb man-made emissions of carbon dioxide, a so-called greenhouse gas, linked to climate change…Coal-fired power plants are the largest source of man-made carbon dioxide in the U.S., accounting for 40 percent of emissions…Climate change legislation that's now stalled in Congress could have placed up to a $17 charge on a ton of carbon emissions. Burning a ton of coal creates about 2.8 tons of carbon dioxide. What is driving prices now is the market, not legislation."

click to enlarge

"Since 2000, demand for coal has been growing 5 percent annually…[T]he U.S. isn't running out of coal and it will remain a low-cost fuel, analysts and industry executives say…The U.S. has the largest reserves of any country — 260 billion short tons, or 29 percent of world reserves…At current production levels, there is a 150-year supply for the nation in the Powder River Basin, said James Luppens, chief of the U.S. Geological Survey's U.S. Coal Assessment…China, the No. 1 coal producer, has an estimated 40 years of reserves left…

"…[E]ven if the price of Powder River Basin coal jumped another 20 percent to $17 a ton, it would still be less expensive than natural gas, said James Rollyson, an analyst with Raymond James & Associates…At $17 a ton, adding a $20 transportation cost to Colorado, Rollyson estimated, the cost of Powder River Basin coal would be equal to $2.39 per million BTUs, compared with the New York Mercantile Exchange spot natural gas price, which has averaged $4.45 this year…Prices will continue to climb because of deep changes in the coal market, Rollyson said."

click to enlarge

"The biggest change is China's shift in 2009 from a coal exporter to an importer and the growing demand from India…By 2030 China's coal consumption will quadruple and India's will double…Powder River Basin, or PRB, coal is the most-used coal in the country — about 45 percent of all consumption…Powder River Basin producers are already sending some coal to Vancouver, British Columbia, for shipment to China, South Korea and South America…

"…Compounding the price pressures are rising costs in mining the Powder River Basin as coal seams run deeper underground…The trucks used in the Powder River Basin are now so big that the operators depend on video screens to drive and a single tire costs $25,000…A USGS study of the Powder River Basin showed the price of coal was about $7.80 a ton to mine when the ratio of overburden to the coal seam was 2 to 1…When the thickness of the overburden doubled and a new cut for a strip mine had to be made, the price rose to $17.80 a ton…"