coal prices set for long term rises

Coal in for Significant Long-Term Growth
By: Dorothy Kosich
Posted: '16-FEB-06 04:00' GMT © Mineweb 1997-2004



RENO--(Mineweb.com) The President and CEO of Peabody Energy (NYSE:BTU), the world's largest coal company, told analysts Wednesday: "It is clear that world events are driving coal to displace oil and gas, that is scarce and increasingly dependent on risky parts of the world."

In a presentation to the USB Natural Gas & Electric Utilities Conference, Peabody President and CEO Greg Boyce predicted that coal demand in China, India and the United States will grow 3 billion tons in the next two decades, adding to the 6 billion tons already consumed worldwide annually.

Boyce declared that "coal has solely stepped into and filed the void created by the inability of global oil and global natural gas supplies to fill their demand." For instance, coal consumption has grown 25% since the year 2000 while the consumption of oil, gas and nuclear energy combined grew 10%.

Based on the infrastructure demand for the next 30 years, Boyce said "the manufacturers of generating equipment are indicating that, for the first time in years, there is more placement of orders for coal-fired generating units than there is for any other form of generating unit." The U.S. Energy Information Agency has estimated that 135 new coal-fired plants and 80 gigawatts of planned capacity are planned, requiring an additional 280 million tons annually of coal production.

Since EIA's long-term forecast for oil is $54/barrel, up from $33/barrel , the agency predicted that coal demand will increase 60% to 1.8 billion tons annually by 2030. The growing demand for coal "allows for a significant opportunity for coals to increase in value and still be the fuel of choice for a new generation going forward," Boyce declared.

Boyce explained that new expanded coal markets will develop from BTU conversion of coal including processing coal into synthetic gas and liquids (for which current technology now exists), and, ultimately, the future conversion of coal to hydrogen. He believes that coal gasification can produce $4 to $5 per mmBTU (million British Thermal Units) for industrial generation, and pipeline quality, natural gas grade BTU for $6 per mmBTU.

Meanwhile, Boyce noted that "South African runs almost all of its economy on coal-derived liquids" while China is spending up to $30 billion on liquefying coal for its transportation sector. Combined with FutureGen technology, which can gasify coal and capture C02 for electricity or hydrogen production, Boyce said the United States "can produce a whole suite of these products without impacts to the environment."

He estimated that Peabody alone possesses 184.9 quadrillion BTUs of energy in its coal reserves, larger that the combined BTU of total U.S. natural gas reserves, or the total BTU of energy company ExxonMobil oil reserves, or the proven oil reserves of the United States.


Boyce warned analysts not to judge the current super coal cycle by previous super coal cycles because current supply "cannot keep up with demand." The current shortages are drive by geological issues, and difficulty of access to low-cost coal reserves, he added.

In the meantime, Boyce said Peabody will be re-pricing 250 million tons of coal in 2007 and 2008, the largest volume of coal sales to be re-priced in the country. He added that the company will be adding 75 million tons of annual production through new development and expansion by 2010.