Thu May 12, 2011 7:46am EDT
By Bruce Nichols and Jackie Cowhig
HOUSTON/LONDON(Reuters) - The United States could vault back into the top rank of coal exporters for good this year thanks to Asia's fuel demand -- just as surging gas output and tougher environmental laws threaten mainstay domestic sales.
Leading U.S. producers, with wallets bulging from high world prices, are jostling to boost their Asian presence.
Their only problem is squeezing enough coal through over-stretched ports and railroads, but efforts are underway to open new outlets thanks to surging confidence in the sector.
"We see it as a structural change," said Deck Slone, chief spokesman for Arch Coal Inc, the second largest U.S. producer after Peabody Energy Corp.
Arch has agreed to buy International Coal Co and has opened a Singapore-based subsidiary to boost its export presence.
Analysts say total U.S. coal exports could amount to around 100 million tons (91 million tons) this year, leaving only Australia and Indonesia above it in the world export rankings, and putting it above Russia, Colombia and South Africa.
It exported 81.5 million tons in 2010. A short ton is 0.907 metric tons, the latter used in markets outside the U.S.
The economic boom in China and India has been the driver, but the developing world is also turning more to the United States to make up for supply shortfalls, particularly buyers who want very high energy-content U.S. fuel regardless of its high-sulphur content.
Miners in the U.S., the world's second-largest greenhouse gas emitter, have been hit by weak domestic coal sales and fear President Barack Obama's tough climate change policies will further cut coal demand.
"U.S. policy toward coal has been negative," said analyst David Khani of FBR Capital Markets. "Add having extra natural gas and every coal producer wants to ship every ton they can out of the U.S."
The opening up of the export market puts them in a more profitable, long-term position.
U.S. miners are now rushing to open Asian marketing offices and to merge, amalgamate and expand their output with their eyes on the export prize.
GOOD TIMES
Annual U.S. coal exports have hit or exceeded 100 million tons only six times in the last 50 years. Exports have been sporadic depending on international prices and freight costs.
But world prices of over $100 a ton (more than $110 a ton) seem here to stay due to strong demand, logistical bottlenecks and slow export growth in major producers this year.
Increased U.S. exports are unlikely to bring prices lower, traders say, but will compensate for delayed coal from Australia and will be smoothly absorbed by the Asian market.
This could not come at a better time for U.S. coal miners who face slow-growing domestic consumption amid tough environmental rules and competition from plentiful, cheap, cleaner natural gas surging from new shale plays.
Optimism dominated analyst conference calls to discuss quarterly earnings as coal company executives forecast historic shifts and big growth.
Arch executives noted that, while 35 gigawatts of U.S. coal-fired generating capacity, 11 percent of the total, could be shut down in the next 10 years, 249 gigawatts of new coal-fired power plants are under construction worldwide.
"This is going to require almost 800 million tons of new coal supply during this time period," Arch President John Eaves told investors.
Total seaborne thermal and coking coal trade in 2009 was 1 billion tons a year, according to the World Coal Association.
"Coal is expected to fuel more incremental generation over the next decade than gas, oil, nuclear, hydro, geothermal and solar combined," Greg Boyce, CEO of Peabody Energy, told investors.
"It's something unprecedented in human history, arguably, 3 billion people going through an industrial revolution at the same time," Arch's Slone said.
STRAINING INFRASTRUCTURE
To a large extent fluctuating freight rates dictate whether U.S. coal exports are competitive with other coal origins.
Another risk is limited U.S. rail and port capacity.
Although nameplate capacities are higher, practical U.S. export capacity is estimated at a maximum of 120 million tons.
"Finding international buyers isn't the problem," an industry insider said. "The bottleneck in the supply chain longterm will be getting the transportation secured."
U.S. coal is already flowing in every direction, and many of the routes are new.
Ports on Chesapeake Bay, at Mobile, Alabama, and the lower Mississippi River around New Orleans, are at maximum capacity.
New flows are coming to Corpus Christi and Houston, Texas, on the Gulf Coast.
A test cargo has been sent across the Great Lakes and down the St. Lawrence River to Europe. Arch is exporting small amounts of Colorado coal through Long Beach, California, a past coal export site that fell into disuse.
Other U.S. coal is flowing into the Pacific Basin from Vancouver and the newer port of Prince Rupert in northern British Columbia, both in Canada. U.S. steam coal is even going to usually self-sufficient South America.
Canadian National Railway's terminal upriver from New Orleans is turning away calls from producers who cannot find a way out, terminal president Bruce Conti said.
More tonnage is going to midstream Mississippi River operators, who use cranes floating in the middle of the river to transfer coal from domestic barges to ocean going ships.
"We're doing more coal than we've ever done historically," said John Crane of St. James Stevedoring in New Orleans.
(Reporting by Bruce Nichols and Jackie Cowhig, editing by William Hardy, sourced Reuters)
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