S.Korea to boost U.S. coal imports to diversify sources

Tue May 31, 2011 10:15am GMT

* Imports of U.S. coal into S.Korea around 7 mln tonnes in 2011
* Looks to nuclear for power source, but rethink taking place
* Power mix shift likely to 31 pct coal in 2024 vs 41 pct in 2011
By Rebekah Kebede

NUSA DUA, Indonesia, May 31 (Reuters) - South Korea's East West Power (EWP) is looking to increase coal imports from the United States as it looks to diversify its supply sources from Indonesia and Australia to manage rising coal costs, a company executive said on Tuesday.

South Korean utilities, or gencos, have looked farther afield as prices in the Pacific basin for coal from the world's two largest coal exporters, Indonesia and Australia have risen, Jason Jang, EWP's head of fuel procurement told Reuters on the sidelines of an industry conference.

"Due to Korea gencos' efforts to cool down increasing coal prices, South African, Russian and even Colombian coal has been delivered into S.Korea, replacing Australian coal," Jang said.

U.S. coal supply to South Korea has been expanding from only a couple of panamax ships before 2009 to 3 million tonnes in 2010, Jang said.

In 2011, South Korea will likely import more than 3 million tonnes of U.S. coal on contract and over 4 million tonnes on the spot market, he added.

"We are trying to introduce more U.S. coal on the condition that the delivered price is better," Jang said, but added that so far the declining U.S. domestic coal market has worked in South Korea's favour.

"The U.S. is not so friendly to the coal industry. The U.S. coal industry knows that and they also would like to convert their markets internally to the export markets," Jang said.

The majority of U.S. coal imported to South Korea originates in the Powder River Basin in the U.S. western states of Wyoming and Montana.

Asian coal prices have a bullish long-term outlook, though they have been depressed in recent months, largely due to the aftermath of the Japanese quake and tsunami in March that knocked out some coal-fired plants.

The index for Australian coal on the globalCOAL index closed at $119.47 a tonne last Friday, down from more than $140 in January when prices were pushed up by flooding and wet weather in Australia's eastern Queensland state.

RETHINKING OF NUCLEAR "INEVITABLE"

South Korea's power baseload is expected to shift from 41 percent coal in 2011 to 31 percent in 2024, as nuclear capacity comes online, Jang said.

"Nuclear power plants are now being considered as the cheapest power source... in order to take the initiative to a greener energy structure, Korea's government has decided to rely more on nuclear power plants rather than conventional fuels such as coal," Jang said, adding that after 2016, coal consumption is estimated to go down rapidly.

Still, South Korea may see a rethinking of its nuclear strategy in the aftermath of Japan's nuclear crisis.

"I think some adjustments will be inevitable after the nuclear power plant issues in Fukushima, people are concerned about more nuclear power plants coming online," Jang said.

But he added that even if South Korea decided to scale back on nuclear power, it will likely result in a ramp up of liquefied natural gas (LNG) demand and renewables rather than coal.

All eyes are currently on the policymakers who dictate South Korea's power industry structure, and a spirited debate on the topic is likely to take place in the next one to two years, he said.

"This is more of a political decision... At this time, there is no impact at all," Jang said.

South Korea has five utilities, which are fully owned by Korea Electric Power Corp (KEPCO) -- Korea Midland Power Co Ltd, Korea Western Power Co Ltd, Korea East-West Power Co Ltd, Korea South-East Power Co Ltd and Korea Southern Power Co Ltd. KEPCO also fully owns Korea Hydro & Nuclear Power Co. (Editing by Ramthan Hussain, sourced Thomson Reuters)